Living Wage Laws

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Abstract

In this paper, I review what we have learned about living wage laws and their impacts on the wages, employment and poverty rates of low-wage workers. I review the characteristics of these laws and where they have been implemented to date, and what economic theory tells us about their likely effects in more and less competitive labor markets. I then review two bodies of empirical evidence: studies across cities or metropolitan areas that have and have not implemented these laws, using data from the Current Population Survey pooled over many years; and studies within particular cities, based on comparisons of covered and uncovered workers before and after the laws are passed. I conclude that living wage laws have modestly raised wage levels of low wage workers and have reduced their employment at covered firms, but that the magnitudes of both effects are likely quite small, given how few workers are usually covered by these ordinances.

Introduction

Living wage laws are “…local ordinances requiring private businesses that benefit from public money” to pay above-market wages and benefits to their workers (Living Wage Resource Center 2006). These laws have been passed and implemented in many larger and smaller cities nationwide. They are widely viewed as efforts to aid the working poor and address labor market inequality, particularly as other institutions that have traditionally done so (such as minimum wage laws and collective bargaining) have eroded over time.

But how effective are these laws at helping the working poor? Do they have unintended, and perhaps negative, consequences for these same groups—such as a drop in their employment rates? Do they affect enough workers to matter one way or another? And, if not, could they potentially be more effective than they are to date?

In this paper we explore this set of issues. I begin by reviewing some facts about living wage laws—such as where and how they’ve been implemented, whom they cover, etc. I also outline their potential impacts, both positive and negative, on employment and other urban outcomes. Then I review the empirical literature on the impacts of living wage laws before concluding with some final thoughts.

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