Charles Gerena

Julia R. Taylor

English

Research Papers in Economics

minimum minimum
ABOVE
the
26 Region Focus • Fall 2004
T
he year is 1993 and a 30-something
Baltimorean is working as a janitor
for the city’s ballpark. He leaves
work at the end of the day, but instead
of heading to his apartment or house, he
walks to the homeless shelter that he
temporarily calls home. The reason for his
current living arrangement is not
unemployment, but that his wage isn’t
enough to keep his family above the
poverty line. 
The above example described in a
Baltimore Sun article — while not nec-
essarily representative of the average
low-wage worker’s experience — illus-
trates the type of decisions that some
have to make. “Alot of people who are
working full-time jobs and [receive]
other assistance still [can’t] get by
with minimum wage. If you work full
time at a minimum-wage job, you [can
still] fall below the poverty line,” says
Erica Schoenberger, an expert in
regional economic development at
Baltimore’s Johns Hopkins University. 
In the early 1990s, the city was in
the middle of a fiscal crisis — with 
BY JULIA R. TAYLOR AND CHARLES GERENA
ACORN
The campaign for living wages has spread from Baltimore to more than 
100 cities around the country, including New Orleans, the location of this rally.
Living-wage statutes are designed to help low-income workers in Baltimore and other
Fifth District communities, but do they get the job done?outlays chronically outpacing revenues
— and was under enormous pressure
to  outsource activities to the private
sector. This privatization push resulted
in jobs going to private firms that often
paid their employees lower wages than
the government had paid its workers
for performing the same tasks. Some
citizens balked at having their tax dol-
lars being used to employ people at
what they saw as an unfair wage. At the
same time, efforts to increase the min-
imum were at a standstill in Congress.
The combination created an atmos-
phere ripe for change. 
As Schoenberger explains, “It was
plain the national policy wasn’t going
to  change fast enough, so something
had to happen at a local level.” What
happened was the living wage.
The term “living wage” is inher-
ently subjective. Some define it as 
a salary that is just enough to keep 
a family out of poverty, while others
view it as enough to be self-sufficient.
In  many cases, policymakers set the
living wage 50 percent to 100 percent
above the federal minimum wage in
order to meet these fuzzy benchmarks.
It  can go even higher for employees
that don’t receive health benefits as
part of their employment package.
In 1994, Baltimore became the first
city in the United States to pass a liv-
ing-wage ordinance. Employers that
contracted with the city were ordered
to pay their employees a wage of $6.10
per hour, enough to yield an income
equal to the poverty threshold for a
family of four. Now in 2004, those
employers along with companies that
receive tax breaks and other subsidies
must pay their workers at least $8.85 an
hour, substantially above the federal
minimum wage of $5.15.
In the decade since the passage of
Baltimore’s living-wage law, about 100
cities and counties across the country
have adopted similar legislation. On
the surface, the living wage is fertile
ground for controversy. Upon closer
examination, however, the results are
not as plain as either its proponents or
critics would claim. The living wage
has helped some low-wage workers,
but the overall effects have been rather
small. Those who have benefited the
most, it appears, are unionized munic-
ipal workers, who because of living-
wage laws face less competition from
private firms eager to win government
contracts.
Helping Some Workers …
Despite the country’s overall eco-
nomic progress in the 1990s, the
salaries of lower-wage workers have
not grown as rapidly as those at the top
of the earnings scale. “There has been
a widening wage inequality. A good
chunk of that has been between the
bottom and the middle,” says econo-
mist David Neumark of the Public
Policy Institute of California. The eco-
nomic reasons for this are complex.
But the political effects have been
pretty straightforward: Living-wage
movements and other “progressive”
causes have gained steam. 
Indeed, many communities with
traditionally large activist popula-
tions, including a number of college
towns, have been at the forefront 
of the living-wage movement.
Charlottesville, Va., and Durham,
N.C., are just two such examples from
the Fifth District. (Not all communi-
ties with living-wage laws resemble
Charlottesville and Durham, though.
See sidebar, “Where the Living Wage
Is  Law.”) As David Neumark elabo-
rates, “In a climate of relatively 
conservative politics and social policy,
[these] localities have passed” ordi-
nances of their own. “It’s a victory 
for very progressive political ideas.”
Communities also had another
impetus to enact living-wage laws. It is
here that the “fairness factor” comes
into play, meaning that those compa-
nies receiving something from the gov-
ernment, whether it’s tax benefits or
contracts, should have to “give back”
in the form of higher wages for their
employees.
Jen Kern of the Association of
Community Organizations for Reform
Now (ACORN), which has pushed
Fall 2004 • Region Focus 27
In 1994 Baltimore passed the country’s first living-wage ordinance.
Since then roughly 100 other communities around the nation have 
followed suit. Which places have been at the forefront of the living-
wage movement and are there similarities among these communities?
Many college towns and other cities with large activist populations
have passed living-wage laws. But they are not alone. According to a
new study by Oren Levin-Waldman, a professor of public affairs and
administration at Metropolitan College of New York, cities with high
immigrant populations and relatively low levels of educational attain-
ment are disproportionately likely to enact living-wage ordinances.
Why? Because there is a substantial number of people who stand to
benefit from such laws, Levin-Waldman argues. In general, these citizens
lack the “requisite education and skills to command higher wages” on
their own, he writes.
There is, however, an alternative explanation, one that is consistent
with research by economist David Neumark. He has found that living-
wage laws tend to benefit unionized municipal workers because they
raise labor costs for private firms that do business with local govern-
ments, and thus make it more expensive to contract out government
services. Many of those private firms, which are put at a disadvantage
by living-wage laws, are likely to employ low-skilled immigrant labor.
What does this mean? Perhaps that living-wage laws are common in
the communities Levin-Waldman describes because they protect munic-
ipal workers from low-skilled immigrant workers — not because they
benefit those low-skilled immigrant workers.
At any rate, one thing seems clear. Living-wage laws are popular in
these communities for very different reasons than most college towns,
where residents tend to be wealthier and more educated than the 
overall population. It seems that in places like Charlottesville, Va., the 
living-wage movement may be driven more by ideology than basic 
economic factors.
Where The Living Wage Is Lawhard for living-wage laws, says that
although there are businesses that
publicly oppose living-wage legisla-
tion, some employers support it 
privately. She claims that some
employers want to increase worker
wages but can’t afford to do so because
they are in competition with other
businesses. Kern argues that if higher
wages were mandated for all employ-
ers, it would take cost competition out
of the equation. (Of course, such a
move would almost certainly increase
prices paid by consumers for various
goods and services.)
Advocates of the living wage also
say that entry-level workers who are
offered higher wages will work harder
and have better attendance, resulting
in a more stable work force. “A higher
wage will bring in a higher quality of
workers. People will work harder when
you pay them more. They take more
pride in their work,” says Burt Barnow,
associate director for research at Johns
Hopkins University’s Institute for
Policy Studies.
Committed workers, in turn, will
rely less on social-welfare programs,
reducing the overall cost to the gov-
ernment and taxpayers. If this 
reasoning is correct, though, it’s not
clear why higher wages would need 
to  be mandated. Private companies
would have a strong incentive to 
raise wages on their own, if doing so
would result in a more stable, produc-
tive work force. 
… But at What Cost?
The philosophy behind living-wage
laws may be praiseworthy, but econo-
mists have been studying the possi-
ble unexpected effects. Their main
concern is that living wages could
squeeze some workers out of the job
market altogether.
The Employment Policies Insti-
tute’s director of research, Craig
Garthwaite, puts it simply: “It’s basic
economics — when you increase the
price of a good, people consume less
of it.” The “good” in this case is labor,
meaning companies will not hire as
many workers. 
When a city forces a business to
pay their workers higher wages 
than they normally would, the policy
may unintentionally hurt the very
people it was designed to help. Many
opponents of living-wage laws argue
that companies will look to find ways
to cut labor costs, such as increased
automation. Think of how gas sta-
tions have cut costs by making 
stations “self-service,” rather than
having a person pump your gas. 
Or companies may try to make up
for some of the higher costs by
increasing the prices of their govern-
ment contracts. But their leverage 
to  do so is limited. Since living-
wage laws effectively make it more
expensive to contract work out, the
law obstructs rather than aids priva-
tization. This leaves governments in
the position of increasing their own
spending. 
Some fear that the increased costs
caused by these laws might make 
a city less attractive to outside busi-
nesses. No one likes to be told what
to do, and private companies are no
exception. They don’t want to be
forced to raise employee wages.
Concerned about what it might 
do to his state’s business climate,
28 Region Focus • Fall 2004
How Much They Have To Pay
Municipalities in the Washington, D.C., metropolitan area like Alexandria, Va., and Montgomery County, Md.,
tend to have higher living-wage requirements than other parts of the Fifth District. This makes sense given
the higher cost of living in the region.
Living-Wage Requirement Law
Requirement Applies To Enacted
Alexandria, VA $11.36/hour City contractors working on June 2000
city-controlled property;
excludes inmates
Arlington County, VA $10.98/hour Companies with county contracts June 2003
> $100,000 for services performed
on county-controlled property
Baltimore, MD $8.85/hour Companies with city Dec. 1994
construction and mail
delivery firms
Charlottesville, VA $9.00/hour County contractors, except Nov. 2001
construction and mail
delivery firms
Durham County, NC $9.74/hour County contractors, except June 2004
construction and professional
services firms; excludes inmates
Montgomery County, MD $10.75/hour Companies with county June 2002
contracts > $50,000 and
10 or more workers
Prince George’s County, MD $10.50/hour Companies with county June 2003
contracts > $50,000 and
10 or more workers
SOURCES: Employment Policy Foundation and ACORNGov. Robert Ehrlich Jr., of Maryland,
last spring vetoed legislation that
would have implemented a statewide
living wage.
Have any of the dire predictions
come true? In their book The Living
W age: Building a Fair Economy, Robert
Pollin and Stephanie Luce concede
that increased wages may drive up costs
in some areas. But they argue that this
effect is not large enough to make busi-
nesses go elsewhere — or to signifi-
cantly affect government finances.
And according to a survey of
Baltimore city administrators, contract
costs did rise, but in the main the
increases represented less than 1 per-
cent of their total budgets. This is due
in part to the fact that only select con-
tract areas experience coverage by the
living-wage ordinance. The law simply
did not cover areas with the largest
concentration of low-wage workers,
such as social work or home health
care. Since so few workers experienced
an increase in wages, city budgets
remained relatively unaffected.
In  general, the benefits to low-
income workers have
been limited as well. A
relatively small share
of workers end up
being covered by liv-
ing-wage laws, namely
those who work for
companies that do
business with the gov-
ernment. And even
among that group,
only some workers are
affected. Those who
are already making
more than the living
wage remain unaf-
fected. Nevertheless,
even if the measures
help just a small per-
centage of workers, it
would still be consid-
ered a victory for liv-
ing-wage advocates.
Who Benefits
the Most
According to Neu-
mark’s research, liv-
ing-wage laws seem to
favor unionized city workers the most.
“Labor relations in the public sector
are [handled differently] than in the
private sector, where there are strikes
when there is a conflict. If you’re the
mayor, you don’t want a strike or the
garbage piling up,” so municipal unions
have a lot of leverage. 
In  the past, local officials could
counter that power by threatening to
shift public jobs into the private sec-
tor unless they received concessions.
But that is no longer a credible
option. “The living-wage law
removes the threat of privatization
because the city would no longer
have an incentive to privatize,”
explains Neumark. Both union work-
ers and those who work for city con-
tractors wind up with similar salaries. 
Furthermore, the ordinances 
target low-wage workers but not 
necessarily low-income workers, less-
ening the effectiveness of the laws.
For example, a high school student
from a relatively affluent family who
works an entry-level job in the sum-
mer to earn spending money is cov-
ered by living-wage legislation in the
same way as workers who are trying to
support families. 
For this reason, as well as many oth-
ers, economists argue that there are
more efficient ways than living-wage
laws to alleviate poverty on a widespread
basis. A better solution, Barnow sug-
gests, is the Earned Income Tax Credit
(EITC), which “targets people with low
earnings. … If you’re in a family with
high income, you wouldn’t be entitled to
it no matter what your job is.”
Still, national organizations such
as ACORN are pushing to bring liv-
ing-wage laws to cities that do not
have them and to broaden coverage in
those that already do. Many activists,
for instance, would like to see living-
wage laws expanded to cover all work-
ers, regardless of employer. This
effectively would raise a city’s min-
inum wage — a development that
many economists would look at unfa-
vorably. As written, most living-wage
laws have only limited effects on a
region’s economy. But if those laws
were applied to everyone, the effects
on economic growth and employ-
ment could become substantial. RF
Fall 2004 • Region Focus 29
R EADINGS
Adams, Scott, and David Neumark. 
“The Economic Effects of Living Wage Laws: 
AProvisional Review.” National Bureau of
Economic Research Working Paper no. 10562,
June 2004.
Bernstein, Jared. “The Living Wage Movement:
What Is It, Why Is It, and What’s Known about
Its Impact?” In Freeman, Richard B., Joni Hersch,
and Lawrence Mishel (eds.), Emerging Labor
Market Institutions for the 21st Century. Chicago:
University of Chicago Press, Forthcoming.
Levin-Waldman, Oren. “Cities That Pass 
Living-Wage Ordinances.” Challenge, September-
October 2004, vol. 47. no. 5, pp. 56-68.
Neumark, David. “Living Wages: Protection 
For or Protection From Low-Wage Workers?”
National Bureau of Economic Research Working
Paper no. 8393, July 2001.
Pollin, Robert, and Stephanie Luce. The Living
W age: Building a Fair Economy. New York: 
New Press, 1998.
Visit www.rich.frb.org/pubs/regionfocusfor
links to relevant sites.
Federal Poverty Threshold*
Minimum Wage Income**
14–
12–
10–
8–
6–
4–
2–
0–
NOTES: 
*   The poverty threshold is presented for a three-person family because,
according to the Census Bureau, this is the average family size in the
United States.
** The minimum wage income was based on a person working full-time, 
40 hours a day, 52 weeks per year at the federal minimum wage for that
year. For periods when Congress raised the minimum wage midyear, the
wage is the weighted average of the minimum wages in force during
that year. 
SOURCE: U.S. Census Bureau, U.S. Department of Labor
Keeping Your Head Above Water
T
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D
S
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Workers earning the federal minimum wage haven’t been
able to keep their families above the poverty line since the
late 1970s. Due to the infrequency of minimum-wage
increases, localities have stepped into the fray with living-
wage standards of their own.
1960
1964
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Above the minimum : living-wage statutes are designed to help low-income workers in Baltimore and other Fifth District communities, but do they get the job done?

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Above the minimum : living-wage statutes are designed to help low-income workers in Baltimore and other Fifth District communities, but do they get the job done?

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