May 28, 2001

What Exactly Is A "Living Wage"?

HIGHLIGHT: A grassroots movement aims to raise pay for the working poor. Here are some of the implications

By ROCHELLE SHARPE, Business Week

Another spring, another student protest. But this time, undergrads at Harvard University won significant national attention for their cause. For three weeks starting in April, they staged a sit-in to demand that Harvard pay a ''living wage'' to its 1,000 or so janitors and other service workers, including those working for subcontractors. Students folded their tent city on May 8, after Harvard agreed to form a committee with student and worker representatives to look at raising pay rates that start at $ 6.50 an hour. The students argued that Harvard should pay at least $ 10.25, enough to lift a family of four above the federal poverty line.

Their effort cast a spotlight on a national movement to force universities, cities, and other public employers to pay a living wage. Religious, student, and labor groups all have become involved in the cause. Here's an overview of what they're doing and why.

What is the living-wage movement? It's a grassroots effort to help low-wage workers earn enough to support their families above the poverty line, defined in 1999 as $ 17,029 a year for a family of four. This equates to $ 8.19 an hour for a full-time job and is 60% higher than the $ 10,700 or so a worker would earn in a year at the federal minimum wage of $ 5.15 an hour.

How did the movement begin? Religious groups and labor unions started talking about living wages in the early 1900s, which led to the passage of the federal minimum in 1938. The contemporary version dates back to 1994, when Baltimore clergy members running food pantries noticed that many regular visitors were working full time but still couldn't feed their families. The clergy turned to the city for help. Eventually, they got an ordinance passed that requires city subcontractors to pay their employees a living wage, now $ 8.03 an hour.

How many of these laws are there, and who do they cover? To date, 63 living-wage ordinances have been enacted since 1994. Religious and labor groups have campaigns going in another 75 communities, while students are pushing the idea at about 22 universities. So far, most of the 63 laws passed have been in cities, though some counties, a few school boards, and two universities -- the University of Wisconsin and Wesleyan University -- have enacted them.

Most of the laws cover companies that provide services to cities but not workers on city payrolls. Some laws apply only to a few kinds of subcontractors, such as janitorial services. Others, such as those in Detroit and Hartford, require businesses to comply if they receive tax abatements or other financial assistance. Only a handful of cities, including Durham, N.C., and Omaha, require living wages for all municipal workers.

How many workers are covered? Only about 100,000 so far -- a fraction of the working poor. Though the number of workers earning a below-poverty wage has declined sharply in recent years, 25% of the workforce, or 30 million people, fell into this category in 1999 (chart). Many have working spouses, so only 12% of all families were in poverty.

If advocates somehow passed laws covering every city in the country, that would lift the pay of roughly 1 million subcontractor employees who now earn less than the poverty rate.

If the laws also covered all those workers employed directly by municipalities, it would add another 1.3 million people, for a total of 2.3 million.

Do all the laws require a minimum wage of $ 8.19 an hour? No, the amounts vary. The highest wage currently is in Santa Cruz, Calif., where it is $ 12 without health benefits or $ 11 with them. More than 35 ordinances require or encourage some form of health benefits.

How much does all this cost, and who's footing the bill? The business impact has been minimal, researchers say, because the laws affect so few people and because higher wages are offset by higher productivity and lower turnover. So far, there's little evidence that living-wage laws raise taxes, although they likely would if they covered more workers.

Opponents have long argued that minimum wage laws destroy jobs. Is that true of living-wage laws? Many economists have backed away from the argument that minimum wages lead to fewer jobs. But even those who still think so say the logic doesn't apply to living-wage laws, because they mostly target municipal workers, so taxpayers absorb any extra costs. David Neumark, a visiting Fellow at the Public Policy Institute of California and a leading minimum-wage opponent, found that when living-wage laws raise pay by 50%, say from $ 5.15 an hour to $ 7.73 an hour, poverty declines by 1%.

What's the argument against such laws? Business groups insist that higher wages could force them to cut jobs. Opponents also fear that the laws erode their profits and could spur broader increases in the minimum wage. They are working in state legislatures to make local ordinances illegal. So far, five states have passed laws banning local minimum wage hikes, and seven others have had similar debates. After Missouri passed a ban, St. Louis approved its own living-wage ordinance, the legality of which will soon be decided in court.

Why don't living-wage advocates push for a higher federal minimum wage, which covers most of the workforce? Because they run into less political resistance at the local level. Business groups are more powerful in Congress, where last year they blocked attempts to lift the federal minimum to $ 6.15 an hour. Washington lawmakers plan to debate similar legislation again soon, but living-wage advocates know they have no chance of getting the minimum pegged to the poverty line. So they chip away at the problem locally.

Poverty-Level Wages: How Widespread?
Share of employees earning $8.19* an hour or less in 1999
MEN 21%
WOMEN 34
WHITES 26
BLACKS 34
HISPANICS 45
15-24-YEAR-OLDS 65
25-44-YEAR-OLDS 23
45-64-YEAR-OLDS 19
* The wage a full-time worker needs to earn $17,029 a year, the 1999 poverty level for a family of four
Data: Census Bureau, BusinessWeek