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The Impact of Living Wage Laws on Urban Economic Development Patterns and the Local Business Climate: Evidence From California Cities

By T. William Lester


Traditional local economic development policies entice private businesses to create high-paying jobs in a given jurisdiction through direct subsidies or by projecting a positive “business climate” within regional and global arenas. Since 1994 however, living wage ordinances have emerged as an alternative response to labor market polarization in urban areas. However, these laws raise labor costs for employers and may thus reduce economic growth. This article advances the empirical literature on living wage impacts through the use of a novel data set—the National Establishment Time Series—to track employment and establishment growth at the city level among directly affected employers (e.g., government contractors), as well as other establishments that may be indirectly signaled by a change in the local political environment. Using panel regression models that account for structural differences between living wage and non-living wage cities, this article finds that living wage laws have no significant impact on employment or establishment growth. Additionally, this article finds no evidence that living wage laws “signal” businesses about a potentially harmful change in the local business wage, labor market institutions, economic development impacts, business climate

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