Living Wage, Live Action
by Robert Pollin
The Nation magazine, November 23, 1998
This past summer, security workers at LAX airport in Los Angeles
began their first-ever union organizing drive. They were motivated,
labor activists say, by the city's foot-dragging in implementing
a living-wage ordinance that had passed the previous year and
guaranteed a minimum of $7.25 an hour (rising with inflation every
July 1), plus health benefits and twelve I paid days off. Workers
unaccustomed to challenging income and power inequities suddenly
felt emboldened by the experience of that earlier drive, which,
like similar efforts taking off elsewhere in the country, began
with the simple premise that no one who works for a living should
have to struggle in poverty.
As of 1997, 7.3 million American families were officially
poor, and in 66 percent of them at least one person had a job.
At the current minimum wage of $5.15 an hour, someone who works
full-time for fifty weeks earns only $10,300 a year-below the
national poverty threshold for a family of two. A "traditional"
family of four with one wage-earner falls nearly 40 percent below
the line. True, this family is eligible to receive an earned-income
tax credit, food stamps and Medicaid, but the need for such programs
to support a full-time worker's household only underscores the
fact that $5.15 an hour is not close to being a living wage.
In opposition to this state of affairs the living-wage movement
was initiated four years ago by unions, community groups and religious
organizations. It has succeeded in passing living-wage ordinances-higher
minimum-wage standards for workers affected by the measures-in
seventeen cities. Now organizing campaigns are pressing forward
in twenty-four other municipalities.
There are a number of lessons from these campaigns, not least
that even in an expansion, real wages will not rise without strong,
creative organizing efforts. The real value of the minimum wage
is 30 percent below what it was in 1968, even though the economy
is 50 percent more productive than it was thirty years ago, and
even after the seven-year "Clinton boom." Now it looks
as if we're coming to the end of that boom. Given the September
22 defeat of Senator Kennedy's bill to raise the minimum wage
by a dollar over two years, it's clear that, in a weakening economy,
workers can win higher wages and better conditions only if they
The living-wage movement has been strategically astute since
its inception. It has emerged primarily at the level of municipal
politics because organizers correctly assessed that their efforts
have a greater chance of success when they attempt to change municipal
laws rather than those of states or the federal government, where
business has a great capacity to use its money and lobbying clout.
Various local campaigns are gaining strength through building
national connections. This past May, the first National Living
Wage Campaign Training Conference, sponsored by labor groups and
ACORN, drew organizers from thirty-four cities to discuss strategy
and consider ways to coordinate their work. But a local focus
is still central to building grassroots support.
Organizing at the municipal level is also the most effective
tactic for fighting the trend toward outsourcing-contracting out
government services to private firms. Because private contractors
pay lower wages and offer fewer benefits, outsourcing saves cities
money by driving down the living standards of workers. In Chicago
the outsourcing of public sector jobs from 1989 to 1995 meant
income losses of between 25 and 49 percent for watchmen, elevator
operators, cashiers, parking attendants, security guards and custodians
whose jobs were privatized. Forcing private firms with city contracts
to pay living wages at least weakens the incentive for cities
to achieve budget cuts on the backs of their workers.
The first living-wage victory was in Baltimore in 1994. The
ordinance there stipulated that firms holding service contracts
with the city pay a minimum of $6.10 an hour, rising to $7.70
as of July 1998 and after that moving in step with inflation.
A single mother working full time at $7.70 an hour would thus
be able to live with her child above the poverty line. However,
a family of one jobholder, one homemaker and two children would
still be in poverty. The Baltimore "living wage," in
other words, is not much of a living, though in light of the precipitous
fall in the real value of the national minimum wage, it was a
Within four years of the Baltimore ordinance, living-wage
laws passed in New York, Los Angeles, Chicago, Boston, Milwaukee,
Jersey City, Durham, Portland, Oregon, and eight other cities.
Municipalities with ongoing campaigns include Philadelphia, New
Orleans, Albuquerque, Knoxville and Santa Cruz. Proposals vary,
but the basic idea is the same almost everywhere: If private firms
want city contracts, they must pay the* workers substantially
better than the sub-poverty wage of the national minimum.
Living-wage laws targeting city contractors will, however,
affect only a small proportion of low wage workers. Some organizers
have thus taken a more ambitious approach, pushing for laws that
would apply to all workers in a municipality, regardless of who
their employer is, just as national or statewide minimum wage
laws apply to virtually all workers within a geographic area.
Recently, organizers in Denver and Houston advanced these more
ambitious proposals but were soundly defeated at the polls. At
least in part, they lost because of their ambitious scope, which
invited an even more determined opposition. So how are living-wage
organizers and supporters to assess the range of possibilities
before them? And how are they to answer their critics?
Will Living-Wage Laws Backfire?
Opponents of minimum-wage laws-of which the municipal living-wage
ordinances are one variant-have long argued that such laws actually
hurt their intended beneficiaries, pricing unskilled workers out
of the job market and so causing unemployment among the poor.
Against municipal living-wage laws in particular, opponents make
two other arguments: that these will place severe strains on the
already over-stretched budgets of cities, perhaps forcing painful
cuts in other benefits to low-income families; and that they will
discourage firms from locating in municipalities, thus increasing
unemployment and poverty in these areas.
Blustering politicians are usually the most visible mouthpieces
for such views. In Los Angeles, then-deputy mayor for economic
development Gary Mendoza said a living-wage law there would mean
"entire industries could be wiped out or move overseas."
Such fulminations can be easily dismissed. But can we be confident
that the critics are completely wrong?
The answer depends, first, on the specifics of any given ordinance.
The LA law, for example, affects employees of three types of private
businesses: those holding city service contracts of more than
$25,000, such as accounting or janitorial companies; concessionaires
on city property, such as LAX; and firms receiving city subsidies
of more than $1 million. This law, applying as it does only to
city contractors and subsidy recipients, resembles those passed
in Baltimore, Boston, Portland and Chicago.
My colleague Stephanie Luce and I have estimated that, at
the outside, this ordinance will raise the pay of 7,600 full-
and part-time workers in LA. Over a year, the income of a full-time
living wage worker will rise by $3,600. These increases will be
spread among the roughly 1,000 firms that are obligated to comply
with the law, making the cost per firm about $24,000. But since
these 1,000 firms produce about $4.4 billion in goods and services
in a year, the extra $24 million in their combined wage bill amounts
to only about 0.5 percent of their annual budgets.
The health benefits to workers and the paid days off provided
under the ordinance will together amount to another $28 million.
A final likely, though not mandated, effect of the law is pressure
for wage increases for workers in the affected firms who now earn
more than the $7.25 minimum. This ripple effect of wage increases
is likely to pertain to workers earning perhaps as much as $9.25
once their lower-paid co-workers get a raise.
When we add these additional costs to the basic mandated wage
increases, the sum still comes to only about 1.5 percent of the
total annual budget of the average affected firm. Indeed, for
about 85 percent of the firms involved, the total annual increase
in costs will be less than 1 percent of their budgets.
City Budgets Won't Go Bust
Most companies faced with a cost increase of 1 percent or
less would be willing to absorb the cost if it were the only condition
on which they could keep winning city contracts. Some may refuse
to absorb these increases, but competitors seeking the same contracts
would likely step into the breach. This means that, through intelligent
bargaining, a city government can purchase essentially the same
quality of services from most private firms after the passage
of a living-wage ordinance with virtually no impact on its budget.
For the roughly 15 percent of firms that will experience cost
increases over 1 percent, a city should expect to absorb some
of these increased costs if it wants to maintain at least a stable
level of services. Here too the impact should be negligible. If,
for example, LA's city government allowed companies to pass on
all increases above 3 percent of their total budgets, the new
costs to the city would amount to less than 0.5 percent of its
$3.4 billion budget.
Will firms simply exit the city rather than face the higher
costs? In fact, there is nothing in the Los Angeles ordinance
or its equivalents elsewhere that encourages relocation. That's
because these ordinances apply to all firms with city contracts,
regardless of where they are located. The same rules for city
contracting, including adherence to the living-wage ordinance,
apply to companies whether they are in LA, an adjacent city like
Santa Monica, or anywhere inside or outside the United States.
Moreover, consider that many companies already pay their workers
higher minimums and still compete successfully. They do so because
they have much lower turnover and absenteeism and higher morale.
A living-wage ordinance encourages more companies to operate along
this high efficiency/high morale path, thereby diminishing the
cost increases they face.
Considering all these factors, it is not hard to understand
the striking result that emerged in both Baltimore and LA after
their initial year of experience with living-wage ordinances.
In both cities, the law on the books had no significant impact
on contracts. To understand this, Mark Weisbrot and Michelle Sforza
of the Preamble Center for Public Policy interviewed business
owners in Baltimore affected by the ordinance. These owners were
actually positive about how the living-wage law affected bidding,
since it "levels the playing field." One bus company
manager said, "We feel more able to compete against businesses
who were drastically reducing wages in order to put in a low bid."
All these estimates of the impact of living-wage laws do,
however, make one strong assumption: that the affected city contractors
will abide by the law. This will not happen automatically. In
LA the mayor's office vehemently opposed the ordinance, and has
sought to exempt as many contractors as possible. This and experiences
elsewhere make it clear that living-wage supporters cannot assume
their job is done once a law has been passed.
Would a Citywide Living-Wage Law Work?
The very features that make the LA proposal and its equivalents
so manageable are also their limitations. Getting raises for 7,000
low-wage workers in a city is a major accomplishment. But 2.4
million other low-wage workers in the LA area are still not covered
by the ordinance. What would be the impact of a more sweeping
municipality-wide law, such as those that were proposed but defeated
in Denver and Houston and the one that is now getting off the
ground in New York? Peter Phillips, an organizer in Sonoma County,
California, told me at a recent conference that this sort of proposal
was the only one that made sense for his area. With either proposal,
he argued, the organizers would have to launch an ambitious educational
campaign. But only a few hundred workers would get raises through
a contractors-only proposal, while several thousand would benefit
through the municipality-wide approach.
In LA a countywide minimum wage of $7.25 would bring raises
to some 2.4 million workers. At the same time, the impact per
firm, on average, would not be significantly different from that
of the contractors-only law now in place in the city. In terms
of creating incentives for firms to relocate, however, a countywide
ordinance could be substantially different. This is because, under
such a proposal, affected firms could avoid paying higher wages
by moving outside the municipal boundaries. The question, therefore,
is: How many firms would actually leave rather than pay a living
wage, and what would be the effect of their departure?
In fact, even here, fears of a mass exodus are unfounded.
Most companies facing significant cost increases under a countywide
ordinance would not relocate. A high proportion of these are restaurants,
hotels or retail outlets, and are tied to their existing locations.
Indeed, only one type of firm would have a strong incentive to
relocate. These are manufacturers that are not tied to their locations
and that employ a high percentage of low-wage workers. Some of
these may choose simply to raise wages rather than incur the costs
of relocation. But even if we assume that all such manufacturers
did relocate just outside the county limits, the main loss for
the Los Angeles County government would be the loss of tax revenues.
Stephanie Luce and I estimate that the number of firms likely
to leave would generate a loss in county tax revenue of between
$50 million and $60 million. This is no small amount, but it is
still less than 1 percent of the total wage increases that workers
would enjoy with a $7.25 minimum wage. The county would likely
experience some additional losses, such as a decline in property
values due to firms leaving their existing locations.
But all those costs would also total less than an additional
I percent of the wage increases received by workers. Meanwhile,
the workers would have more money to spend would pay more in taxes
and would rely less on government subsidies. The negative effects
would be more severe if firms moved completely outside the region
since workers would also have to move to keep their jobs. But
here again nothing in a municipality-wide living wage would encourage
firms to leave the region altogether, as opposed to getting themselves
just beyond the county line.
Why Not a National Living Wage?
The viability of the living-wage proposals, whether applied
to government contractors alone or to all companies in a region,
invites consideration of an even more ambitious proposal: a national
living wage of $7.25. If that sounds outlandish, it is only because
the presumptions of greed have so dominated US economic policy
discussions for a generation. After all, in today's dollars, the
minimum wage was $7.37 thirty years ago when the economy was 50
percent less productive. If the minimum wage had just kept pace
with productivity over the intervening years, it would today be
$11.07. If nothing else were to change in the economy, bringing
all workers up to at least $7.25 would require only small adjustments
in income distribution. Just to illustrate the degree of redistribution
necessary, the wage increases needed to bring all minimum-wage
workers up to $7.25 would be equal to a reduction of only 6.6
percent in the incomes of the richest 20 percent of households,
from roughly $106,600 to $100,000.
However, even this small sacrifice by the well-off could be
avoided if the economy's rate of growth increased. But to think
seriously about accelerating growth means confronting the commitment
of Wall Street and the Federal Reserve to an economy whose real
growth is slow, even while financial markets are allowed to expand
at dizzying - an ultimately destabilizing - rates.
As the nineties boom economy appears to be ending, it is important
to be clear on just how weak-from the standpoint of real productive
growth as opposed to speculative financial excess- this expansion
has been. On average, national income grew only 2 percent between
1990 and 1997. This is in contrast to an average income growth
rate of 4.4 percent in the sixties and an average of 3 percent
in the seventies and eighties, widely considered to be decades
of poor economic performance. What if the growth rate rose to
an average of only 3 percent over the next ten years? In that
situation all workers earning less than $7.25 could be raised
to this new minimum and there would still be an additional $3,000
per year to distribute equally to all other workers, on top of
what they would otherwise receive were the economy growing at
This growth solution is obviously much more complicated than
this simple illustration can convey. For one thing, a new financial
regulatory structure is clearly needed to channel funds away from
stock run-ups and into productive activity. But even if new regulations
could dampen speculative excesses, rapid growth still presents
problems from the standpoint of business. Workers gain confidence
because of the better wages and greater job security that result
from a faster-growing economy, and this can lead to further demands
for full employment, higher wages and improved working conditions.
Businesses want to prevent workers from gaining this bargaining
strength, and the job of national policymakers is to articulate
the self-interested position of business for slow growth, as if
it were the only sensible policy for everyone.
Such thinking was cogently expressed before Congress in July
1997 by Federal Reserve chairman Alan Greenspan. Testifying that
the economy's performance in 1997 was "extraordinary"
and "exceptional," he noted that a major factor contributing
to this outstanding performance was "a heightened sense of
job insecurity and as a consequence, subdued wage gains."
Thus, for Greenspan the "economy" is doing well
when workers can't get raises. Could it be more clear that the
real barriers to achieving a national minimum wage of $7.25 are
not economic but political. But how can political power be mobilized
in support of economic justice? Here we return to the central
importance of the living-wage movement. Organizers are clear that
their agenda includes more than passing local ordinances, even
while the ordinances themselves represent major victories. Tammy
Johnson, until recently with Progressive Milwaukee, an affiliate
of the New Party, says that because of living-wage campaigns,
"the phrase 'living-wage job' is in the vocabulary in a way
it wasn't two or three years ago. When jobs are being created
people will ask "Is it a livable wage job?" The director
of the LA Living Wage Coalition, Madeline Janis-Aparicio, says
the goal of the campaign has been first, '~ directly affect the
lives of workers who are getting a raise." But she also sees
the campaign as "a tool for union organizing, for confronting
the problem of wage inequality and for expressing a certain level
of dignified treatment of workers." That such a campaign
can spark further demands on the part of workers is illustrated
by the LAX union organizing drive.
The living-wage proposals gaining ground will directly contribute
only modestly toward eliminating poverty. But their importance
far exceeds their immediate measurable impact. As more cities
gain experience with these laws over the next few years, their
limitations as well as strengths will become evident. The process
of political and economic education will then provide a platform
from which to launch more ambitious egalitarian wage and employment
programs and to deepen the movement for economic justice in this
For further information here is a partial list of contacts:
ACORN, Jen Kern, (202) 547-2500
AFL-CIO, Christine Owens, (202) 637-5178
Solidarity Sponsoring Committee, Kerry Micioffo, (410) 837-3458
Boston Jobs & Living Wage Campaign, Lisa Clauson, (617)
Cleveland SEIU Local 47, Willie Howard, (216) 621-0995
Metropolitan Detroit AFL-CIO, Joyce Lartigue, (313) 896-2600
Duluth Coalition for a Living Wage, Erik Peterson, (218) 722-0577
LA Living Wage Coalition, Madeline Janis-Aparicio, (213) 486-9880
Campaign for a Sustainable Milwaukee, Bill Dempsey, (414)
Progressive Minnesota, Jennifer Smith (651) 641-6199
New Haven Living Wage Campaign, Andrea Cole, (2Q3) 624-5161
Oakland Living Wage Campaign, Jim DuPont, (S10) 893-3181
Portland Jobs With Justice, Nancy Haque, (503) 236-5573
Robert Pollin is a professor of economics and co-director
of the Political Economy Research Institute at the University
of Massachusetts. He is co-author, with Stephanie Luce, of The
Living Wage: Building a Fair Economy (New Press). This article
is part of the continuing Haywood Burns series on CommunityActivist