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 fight effectively.

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 major breakthrough.

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 2 percent.

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 country.

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) 436-7100

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) 444-0525

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 Journalism.

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