These are ideas, and words, that administrators rarely employ when discussing labor policies. More often, administrators speak of budgets, of cost effectiveness, or of questions of eligibility. Certainly, implementing any labor policy requires discussion of these issues; and as we argue later in this report, a living wage policy can easily be implemented at Harvard. However, technical questions are very often used to distract attention from the social and moral issues that ground living wage policies. We place social and moral concerns first in our discussion because they properly form the basis of any debate about whether to adopt a living wage policy. This debate is not fundamentally about budgets, but about the way people should live, the way we should treat other members of our community, what we each need and deserve. In proposing that members of our community publicly support the adoption of a living wage policy, we ask them to affirm the principle that every member of our community needs and deserves a living wage with benefits. We seek an agreement that this goal is sufficiently important that our university administration should accept it as an immediate goal. If we can agree to this, we will have an appropriate basis from which to move on to questions of implementation—questions which require careful thought, but which should not dictate the moral and social standards of our community.

Members of our community may differ in our formulations of social and moral standards, but there are complaints against extreme poverty that most of us can share.

Poverty’s violations of social and moral standards require us to respond. The following sections present an argument that we can.

Based on information gathered from the administration, campus unions, and individual workers, we estimate that there are currently 1,000 to 2,000 people working on our campus who are paid less than $10.25 per hour with benefits. These workers fall into three categories:

1. Directly-hired, unionized, "regular" employees. The Harvard administration acknowledged that, as of March, 1999, it paid 358 directly-hired "regular" employees less than $10 per hour (then the living wage standard for the city). Full-time Harvard janitors, for instance, were paid as little as $8.15 per hour, and part-time janitors as little as $7.50. Over a year later, in May, 2000, the Ad Hoc Committee on Employment Policies revealed that the number of directly-hired "regular" workers paid less than $10 per hour had increased slightly to 372.
2. Casual employees. Administrators told us that in March, 1999, approximately 650 so-called "casual" employees earned less than $10 per hour (then the living wage standard for the city). According to Harvard’s stated policies, casual employees are supposed to work at Harvard part-time and on a temporary basis; although they are directly-hired, they are ineligible for union membership, typically receive no benefits, enjoy no job security, and are often inadequately paid. In recent years, Harvard has committed systematic abuses of the casual payroll in an effort to avoid creating union jobs: hundreds of people worked on the casual payroll for as many as ten years, and some worked more than 40 hours per week. Thanks to the work of the Harvard Union of Clerical and Technical Workers, the university agreed in 1999 to eliminate such abuses of the casual payroll, and transfer long-term casual employees to regular employment. Nonetheless, hundreds of legitimate casual employees remain, underpaid, ununionized, and without benefits.
3. Subcontracted employees. Harvard establishes contracts with nearly 9000 firms annually, and maintains ongoing relationships with roughly 180 firms. According to the Ad Hoc Committee on Employment Policies, in May, 2000, roughly 2000 of Harvard’s subcontracted employees worked in the service sector—in custodial, dining, parking, and security jobs. Like casual workers, who are not unionized, most of these employees lack union representation. Major employers in this category include Sodexho-Marriott, which provides dining services for the Law School, the Kennedy School, and the Business School, among other locations; the security company Security Systems Incorporated; White Glove, a janitorial contractor; and UNICCO, another janitorial company. The Ad Hoc Committee maintained that roughly 500 of these workers were paid less than $10 per hour (the living wage standard when the committee collected its information). Based on extensive outreach to workers on campus, the Living Wage Campaign estimates that there are in fact more than 500 subcontracted workers on campus earning less than Cambridge’s living wage standard. Regardless of any disagreement, however, it is clear that subcontracted employees are vulnerable to numerous forms of exploitation, and that they may comprise the largest category of underpaid workers at Harvard.

First, Harvard claims that its wages must already be fair because they are determined through union negotiations. However, all casual workers, and many subcontracted workers, are not unionized. They have no voice in workplace decisions that profoundly affect their lives, including decisions that determine their wages and benefits. Harvard simply pays these workers as little as it likes—typically $6.50 to $9 per hour, with few, if any, benefits.

Second, Harvard claims that it in fact pays very few workers less than a living wage: administrators cite the claim of the Ad Hoc Committee on Employment Policies that only 372 Harvard employees, or 2.9% of Harvard’s workforce, are paid less than a living wage. However, these numbers are based on a misleading definition of "Harvard worker," which includes only directly-hired, "regular" employees (the first category discussed above), and excludes all casual and subcontracted workers. By playing with the definition of "Harvard worker," administrators purposely conceal the large number of employees they underpay.

A comparison of wages and benefits between Harvard dining service workers, represented by Hotel Employees/Restaurant Employees Local 26, and non-union Sodexho-Marriott workers, highlights the extent to which Harvard uses subcontracting to cut wages and benefits. While Sodexho-Marriott dining service employees at the Law School and Kennedy School are typically paid $6.50 to $8 per hour and often lack health benefits, the College's dining service workers earn as much as $15.85 per hour and receive health benefits. Such disparities are found in every sector in which subcontracted workers are employed. For instance, subcontracted security guards and janitors are typically paid just $7 to $9 per hour. Though these workers perform the same tasks as those performed by unionized employees directly hired by the university, they receive no "equal pay for equal work."

Even as the Living Wage Campaign has brought attention to the problem of subcontracting, Harvard has aggressively expanded its use. An egregious case has been that of Harvard’s security guards. The guards formed a union in 1995, but worked without a contract until 1999 because the university refused to bargain in good faith; ultimately, the guards filed a complaint with the NLRB in 1999. That summer, with workers badly needing a contract, and with their numbers dwindling as many left what had become an impossible work environment, Harvard forced the union to accept a contract whose best feature was a buy-out clause. All but 25 Harvard guards accepted buy-out packages and left the university. Each guard who left was replaced with a subcontracted guard from SSI—a company which, aside from paying poverty wages, reportedly does not pay workers for training time, which is illegal. Since buying out these unionized workers in 1999, Harvard has continued to try to bust the guards’ union by replacing every guard who leaves with a subcontracted guard; today, fewer than 20 Harvard guards remain at the university. SSI guards are now even being used to replace directly-hired book checkers in Harvard libraries. In fact, Lamont library brought in subcontracted workers without ever advertising the job openings to directly-hired book checkers who had expressed interest in working more hours.

The guards are not the only workers whose jobs are being outsourced: Harvard increasingly uses subcontractors for janitorial and dining services. Just this February, Harvard outsourced all 200 janitorial jobs at the Medical School. Workers all over campus with whom we have spoken say that they have watched these developments, and they feel it is only a matter of time before they, too, are replaced with subcontracted workers who will be paid less and denied benefits.

It should be noted that not all universities have pursued this policy of driving out directly-hired employees and replacing them with subcontracted workers. Boston University, for instance, does not subcontract any of its janitorial work, and pays all its janitors over $10 per hour.

Harvard operates on a grand scale; in fact, the university's 2000 operating budget of $1.9 billion exceeded that of the United Nations by $640 million. Harvard routinely pours millions of dollars into cosmetic improvements such as the $4 million tower recently added to Memorial Hall. It buys land for sums competing buyers find unthinkable, as in its purchase of 48 acres of land in Allston for $151 million in 2000. The only other bid on the land, placed by the Genzyme Corporation, was $25 million, less than one-sixth of Harvard’s bid. Finally, when it chooses to, the university has no trouble paying workers quite decently: in fiscal year 1998, Harvard paid its top two fund managers a total of $16 million. In fiscal year 1999, its top fund manager earned nearly $10 million, the next two earned nearly $9 million each, and its top five fund managers earned a combined total of $40 million. Jack R. Meyer, the president of the Harvard Management Company, told the Crimson, "I did not have a good year," referring to his 1999 pay of $1.6 million.

Interestingly, Harvard’s enormous expenditures have not kept pace with its income, which has increased even more quickly. This fact is seen in an examination of Harvard’s income and expenses for fiscal year 2000. Harvard had an operating surplus of $120 million, which was "the largest operating surplus in [Harvard’s] history," according to Vice President for Finance Elizabeth Huidekoper and Harvard Corporation member and Treasurer D. Ronald Daniel. Of that operating surplus, $51 million consisted of unrestricted funds—money which could have been used for any purpose. That same year, gifts for current use increased 22%, totaling over $144 million. The endowment money distributed for operations increased by more than 29%, from $430 million to $556 million. The university’s total income rose 14%, or $250 million, for a total of $2.023 billion. By contrast, university expenses rose by only $65 million, to $1.902 billion; depending on the method of measurement, this increase amounted to a rise of just 4% to 8%. Harvard’s income and wealth are increasing much faster than its expenses are; under these circumstances, it is shocking that the university will not consider devoting a small amount of its surplus to workers’ wages.

The amount that would be required is quite small. By very liberal estimates—assuming the existence of 2000 employees each working 35 hours per week, 50 weeks per year, at $7.50 per hour—we estimate that it would cost Harvard $10 million per year to implement a living wage policy. This cost, while significant in absolute terms, in fact represents only one-half of one percent of the university's 2000 budget; it is unnoticeable amid the extraordinary expenses which the university assumes without complaint. Looked at another way, it is less than one-half of one percent of the annual interest on Harvard’s endowment. Looked at still another way, it exactly equals the 1998 salary paid to one Harvard fund manager, Jonathan S. Jacobson. It is ironic, and deeply disturbing, that Harvard administrators unflinchingly pay this amount of money to a fund manager, but balk at the suggestion that they pay one two-thousandth of it to a janitor or clerical worker. It is especially shocking that such a position should be taken by administrators overseeing a $120 million budget surplus.

According to the Eviction Free Zone, a community organization which helped to draft the Cambridge living wage ordinance, $10 per hour was chosen in part because it was the lowest wage paid any unionized city employee. As such, it was seen as a minimal standard for a living wage. In fact, several studies on the local cost of living show just how minimal it is. For instance, the National Low-Income Housing Commission estimates that a wage of over $15 per hour is necessary to afford a two-bedroom apartment in the Boston area. Another study, published by Wider Opportunities for Women, found that in a family with two working adults and one child, each adult needed to earn $11.41 per hour to live in the Cambridge area in 1997. A single parent with one child needed to earn $17.47. In Boston, the corresponding figures were $10.08 and $15.28. These three-year-old figures are higher than the $10 per hour standard approved in Cambridge in 1999, and are by no means based on expectations of extravagant living. According to the authors of the study, "The Self-Sufficiency Standard is set at a level that is, on the one hand, not luxurious or even comfortable, and on the other hand, is not so low that it fails adequately to provide for a family. The Standard provides income sufficient to meet minimum nutrition standards, for example, and to obtain housing that would be neither substandard nor overcrowded. It does not, however, allow for longer-term needs such as retirement, purchase of major items such as a car, or emergency expenses."

The $10.25 per hour standard is particularly conservative in light of the skyrocketing rents in Cambridge. During the three years following the 1995 abolition of rent control, rents for 14,500 formerly rent-controlled units jumped by 85 percent. According to figures compiled by the Rental Housing Association, the average apartment rent in Greater Boston now exceeds $1,050. Thus, even with a $10.25 per hour wage, a full-time worker would spend more than 60 percent of his or her pre-tax income on housing alone to live in an average apartment in Greater Boston.

These economic conditions are more than impressive abstractions: they are the realities of life for Harvard workers. Jim, a UNICCO employee, has cleaned an academic building in the center of the Harvard campus for more than eight years. He makes $9.05 an hour and receives some health benefits. Several years ago, Jim's Cambridge rent increased from $400 to $800 per month. He looked for another apartment in Cambridge, but was unable to find one that he could afford. After fifty-eight years of living Cambridge, Jim was forced to move to another working-class suburb and commute to work. "I work three jobs just to get by," he explains. "I'm fifty-eight years old and I can only afford to sleep four hours a night. I work full-time at Harvard, take the train home, grab a cup of coffee and then I go to work at the supermarket from 6 until midnight. On the weekends I work at a coffee shop, and I'm still in debt." Jim's experience is hardly unique. It is difficult to find any Harvard employee who earns less than $10.25 per hour and who can afford to live in Cambridge.

The need for benefits as a supplement to a living wage is more explicitly supported by the findings of Wider Opportunities For Women. In calculating the wages needed to support families in our area, the organization noted that its standards—all higher than the standard adopted in Cambridge—covered only daily needs, not long-term expenses, large purchases, or emergencies. Thus, Cambridge’s living wage standard of $10.25 per hour can not be expected to pay for costly health needs, retirement expenses, or other costs which are standardly covered by benefits.

It is important to note that benefits must be provided as a supplement to the $10.25 wage standard, not a replacement for some portion of that wage. Harvard administrators have argued that the $10.25 per hour standard is unreasonable, as some workers additionally receive benefits which they say are equivalent to increased wages. For instance, they argue that a worker who is paid $7 per hour in wages, and who also receives health benefits, may in fact receive the equivalent of a $10.25 per hour living wage. Such a worker, they conclude, has no need for a higher wage. As the information above makes clear, however, their argument is faulty: families living on $7 per hour can not pay rent in Cambridge, regardless of the number of dental appointments Harvard allows them, and those earning $10.25 per hour can not afford fillings without dental insurance. Retirement packages, disability insurance, health coverage, and other forms of non-wage compensation are necessary additions to wages, not substitutes.

The reason that some unionized workers still do not receive a living wage is not that they and their unions have not demanded it, but because Harvard has rejected their demands. A telling case is that of Harvard’s directly-hired janitors, who are represented by SEIU Local 254. Last year, the janitors’ contract was up for renegotiation, and the union put forward a demand for a living wage. The demand was powerfully supported by a series of public demonstrations which were covered in the Boston Globe, and which brought together janitors, representatives from Local 254, students, faculty, and other campus workers and union representatives. Harvard’s negotiators, however, opposed the demands of the union, and because of their relative power in negotiations, were able to keep down wages and benefits. As a result of Harvard’s opposition, hundreds of directly-hired, unionized janitors are still paid less than a living wage, and no part-time janitors receive benefits.

In other words, the low wages and benefits of hundreds of Harvard janitors are the direct result of Harvard’s adversarial actions in contract negotiations. Harvard administrators never mention this fact when they tell the community that unions have not spoken up for a living wage.

• A living wage policy for all workers at Harvard – whether they are directly hired or contracted out – will raise the living standards of low-wage service workers.
• Research on living wage ordinances and economic theory also suggest that most of the higher wage is "absorbed" through higher productivity (especially through reduced turnover); some through increased costs of contract; and very little to none through reduced hours of employment.
• The evidence on the "absorption" mechanism, and the nature of service work at Harvard to be affected by a living wage, suggest that the quality of services are likely to rise – especially in custodial and security services.
• Such a policy will prevent the now endemic use of contracting-out to put downward pressure on wages of service workers and to weaken unions at Harvard – and will increase job stability for workers on the margin of outsourcing.

At Harvard and elsewhere, Living Wage proposals have arisen where the practice of outsourcing prevails. Despite the apparent incentives to outsourcing for employers, it can have deleterious consequences for all parties involved, even employers themselves. Living Wage proposals can attenuate these bad consequences. In this section we explain how.

A simple example illustrates the apparent incentives to employers for outsourcing. If organized Harvard employees feel that Harvard is unfairly denying them a raise, they have the recourse to strike. Of course, Harvard could get away with hiring strikebreakers, but this would impose additional costs. But if those same employees working at Harvard were officially employed by a subcontractor, Harvard could switch to another outside contractor without incurring any additional costs. Purchasing services through an outside contractor effectively bars the employees from exercising their rights at the workplace. By funneling jobs to the sectors where workers are least able to voice their demands, Harvard can bypass the legal and institutional safeguards that are in place to protect employees.

Now, when corporations contract out to other contractors, the resulting jobs are often part-time, temporary, and provide no benefits. Suppose Harvard wanted to preserve at least some of its reputation as an employer, retaining certain benefits for its direct hires in upper end positions. As a way of cutting costs, it might shift some jobs to "low-road" contractors who do not have the qualms that Harvard might. Indeed, we find an ever increasing outsourcing of workers to low-wage contractors that segments the workforce on campus into better paid direct employees in upper end occupations, on the one hand, and lower paid service workers hired by contractors, on the other. As the latter are not "real Harvard employees," this practice enables Harvard to shirk responsibility for their wellbeing even more, while perhaps shielding some of its reputation amongst those who are kept in-house. As it is, the division of Harvard employees into the "casual" and "regular" payrolls serves this purpose. The ability to contract out has proved to be a powerful way of amplifying this process.

Outsourcing does not only affect those employees who actually lose their jobs. In recent years, Harvard has repeatedly wielded the threat to outsource in an attempt to wrest wage and benefits concessions from workers employed directly by the university. A notable case is that of the Harvard security guards, who in 1999 filed a complaint against the university with the National Labor Relations Board because of the administrations refusal to bargain in good faith. In fact, although the security guards made more than $10 per hour (then the living wage standard), the threat to outsource was being used in an attempt to drive their hourly wage below nine dollars, and to cut their sick days, holidays, and disability insurance.

Contracting out pushes down wages and weakens collective bargaining. A properly implemented Living wage policy attenuates these effects. Accordingly, one might think that such a policy would bring with it the following negative consequences: (1) the wage increase will lead to price increases and eat away at real income; (2) the wage increase will lead to a drop in labor demand and hence cause job losses; (3) the wage increase will be too costly and cumbersome to implement – both due to rising costs of contracts, and costs of ensuring compliance, renegotiations, etc.

The third issue – difficulty of implementation – is best addressed in relation to studies of already implemented living wage policies. We will turn to these shortly. For now, consider the other two issues: price increase and decline of real income, and a drop in labor demand and job losses. Should we expect either of these to result from a Living Wage policy?

To claim that 1500 workers in the Greater Boston area receiving a 20% rise in earnings will cause enough of a price rise to even begin to eat away at their nominal wages or those of other working people is implausible. Even if the income of workers rise by $10 million (an upper bound), and we assume that this money would have otherwise been "saved" or at least not spent in the local economy, it represents less than 1/100 of a 1% increase in purchasing power in the Greater Boston area.

So the concern with inflation is not applicable to our case. Although some critics have levied this claim against Harvard's Living Wage campaign, we suspect these critics have confused our proposal with the proposal to raise the minimum wage on a national level. Whether a national minimum wage "defeats itself" through inflation is beside the current point, since it is not what is being proposed.

Neoclassical economic theory predicts that a rise in a "factor of production" leads to a drop in its demand. However, there is both reason to be skeptical of this prediction, and reason to doubt its relevance in the case of Harvard University. Let us begin with the prediction itself.

The impact of minimum wage on employment is a controversial and a hot-button issue in economics, especially since 1993, when Princeton economists Card and Krueger published their seminal work. Comparing the evolution of wages and employment in New Jersey and Pennsylvania after a minimum wage hike in New Jersey, they found no evidence of deleterious employment impacts, and found that employment actually rose. This has since produced a slew of articles either substantiating or challenging these findings. The somewhat surprising thing, to quote Harvard labor economist Richard Freeman, is that "this is primarily a debate around zero." In other words, the magnitude of the estimated employment elasticities are quite small – even when they are found to be negative. The state of economists’ understanding of the minimum wage issue is encapsulated in a statement by Nobel laureate Robert Solow, who said, "the main thing about this research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small." It is perhaps fitting, then, that the most recent estimates from the long-standing participants on the debate – Card and Krueger on the one hand, and Neumark and Wascher on the other – converge towards zero, albeit from opposite sides. (See American Economic Review, July, 2000)

Part of the reason that the employment effect might be small is that some of the rise in wage costs is absorbed through a greater productivity – especially through lower quit rates, improved morale, greater incentives to train, etc. The so called "efficiency wage" hypothesis identified "four benefits of higher wage payments: reduced shirking of work by employees due to higher cost of job loss, lower turnover, improvement in the average quality of job applicants, and improved morale." (Akerlof and Yellen (1987)) Moreover, reduced turnover also increases the benefits of providing workers with training. All these concerns certainly raise questions about how important the job loss concern might be.

A related concern raised by neo-classical economic theory is that a rise in the price of a "factor of production" will make producers less competitive. This concern, too, is inapplicable in the case of Harvard. Being a premier university in the world, a small rise in the cost of service sector work will certainly not reduce Harvard's competitiveness. Indeed, what makes Harvard competitive is the quality of its resources, human and otherwise, that are devoted to higher learning.

Although to date there are no living wage policies for private employers, municipalities across the country have passed ordinances mandating a wage floor for their employees and those of its contractors. And of course, there have been a host of studies on the effect of state mandated minimum wages on private employment. This evidence, together with municipal living wage studies provide an useful guide in forecasting impact here at Harvard. Besides the municipal living wage studies, there are two sets of data to consider: the data on minimum wage laws, and the data on 'prevailing wage' laws. Let us consider each in turn.

As we saw in discussing whether increased wages leads to job loss (in the section on purported negative impacts, above), increases in labor productivity can defray part of the increased wage costs of employment. Work by Picshke and Acemoglu, economists from Princeton and MIT, respectively, corroborates these results. They found that training responded positively to minimum wage increases between 1987 and 1992. The evidence on turnover is also clear, particularly in the low-wage sector, where turnover is much higher. Evidence of this presented in Akerlof and Yellen (1987); the corollary of this relationship in the unionization case is presented in Freeman and Medoff(1984, Chapter 11). And these are not just academic musings. A new report by the business network Responsible Wealth is particularly informative regarding wages and productivity. In "Choosing the High Road: Businesses that Pay a Living Wage and Prosper," the authors give numerous case study examples, including employers’ testimonies, of firms that pay living wages in order to reap the efficiency gains discussed by the academic literature. Apparently, the business world is quite aware that paying for productivity produces payoffs.

Following the Davis-Bacon Act, construction workers employed by federal (and sometimes state) contractors, must be paid "prevailing wage" for such workers in that area. A similar provision exists for service workers under the Service Contract Act. The motivation of this legislation was both to insure living wages for workers in government project, as well as to insure against poor quality work performed by low-bidders. These laws, then, are similar to living wage ordinances, with the exception that they only apply to certain worker types.

Labor economists have carefully studied these Davis-Bacon laws. Unsurprisingly, they find that these leveled the playing field between responsible, higher quality contractors paying better wages and "lowball bidders." Furthermore, the increased labor costs were absorbed primarily through more efficient production. Studying the state versions of these laws (little Davis Bacons), researchers found that training of employees increased substantially, and occupational injuries fell. Contracts were completed more efficiently with fewer delays. Finally, repealing one such act in Utah led to a tripling of total cost overruns on state highway construction.

Bernstein's recent study of building services (see footnote 2 below) is especially relevant for our purposes, since these occupations are closer to those likely affected by a living wage policy at Harvard. This study examines the competition in building services between low-ball bidders and higher paying contractors (some of whom are covered by living wage ordinances). Clear evidence was found that higher wage contractors provide higher quality services leading to improved occupancy rates, higher probability of lease extension by major tenants, and greater physical integrity of property. The contractors paying higher wages had less turnover and offered more training, leading to greater customer satisfaction.

Let us now turn to the Municipal living wage ordinances, and consider their impact on employment and productivity. Although this literature on this topic is young, there is--remarkably for economic research--consensus in key areas. David Neumark, leading critic of the Card-Krueger studies, represents the opposite extreme in the minimum wage debate. Yet turning to living wage ordinances, he finds that the hours and employment reductions are small--even under assumptions most favorable to that hours-reduction proposition! His study compares two classes of workers: those in occupations likely to be covered by living wage in municipalities, with those in municipalities without such ordinances. He includes various controls for types of municipalities and other relevant factors. His results are these: regressions showing disemployment responses that are small and fragile. The most favorable specification finds that a 10% rise in wages will have less than 1.5% drop in employment. The impact on hours is statistically insignificant and close to zero. Moreover, the weak employment and hours effect imply that the wage hike will indeed lead to rise in family incomes. On the basis of these data, he concludes: "living wages are at least modestly successful at reducing urban poverty in the cities that have adopted such legislation."

Other researchers, looking at individual municipalities, have found similar results on the hours and employment front. Also, these studies looked at the wage-rise absorption channels – providing insights into the muted employment response. Two separate studies of the Baltimore living wage ordinance – passed in 1994 - come up with the following key findings:

• The cost increase to the city was less than the rate of the inflation over this period (sample was 1.2% of all contracts)
• Interviews with workers reported no change in employment levels at their workplaces in response to the wage increase
• There was a small decrease in the number of bids per contract after the ordinance went into effect, but this did not raise contract cost
• Case studies and interviews with employers suggests that some labor cost was absorbed through productivity gains – especially through turnover

The Los Angeles living wage ordinance – passed in 1997 – was examined by Richard Sander of UCLA and Sean Lokey for the Fair Housing Institute. Although coverage was limited due to a large number of exemptions, and implementation is fairly recent, it has informative results. In 17 of the 30 covered firms, costs of contracts did not change, and employment dropped modestly, if at all. In 8 of 30 firms, cost was passed to the city (in these cases there was no competitive bidding). In 5 of 30 firms, scope of the contract was reduced, resulting in reduced employment on the contracts. The researchers estimate that total employment in city contracts was reduced by about 3%, for an ordinance that brought wage benefits to workers of about $2.5 million. Note that if the wages of these workers rose by about 20%, then the employment reduction figure is roughly in line with the Neumark study.

Finally, how about the difficulty and complexity in implementation? There has been only limited research on this. The Los Angeles study found the implementation costs for the living wage ordinance transferring $2.5 million would be no more than $500,000. How about the difficulty contractors might face with implementing the new wage floor? None of the interviews with contractors in the municipal studies find difficulty in term of how a wage requirement might affect contractual or legal obligations in any sense. The legal and contractual basis of a living wage is simple indeed. The main constraint seems to be to muster the political will to enact a sensible and helpful policy.

As we see it, the research on federal minimum wage, prevailing wage laws, and municipal living wages have some clear relevance for understanding the cost and employment impacts of a living wage policy at Harvard. All the evidence points to the same fact: reduced turnover and increased morale definitely defray part of the costs to Harvard – be it directly, or through moderated increases in bids for contracts. Especially in the case of security, where guards have seen their wages drop substantially as they have been outsourced, the increased morale and greater attachment to job is likely to have a real positive impact on the quality of life at Harvard. Not to mention that faculty, staff and students are often disturbed by an unknown person cleaning their office or hallway every few weeks. Such attrition of the work force is unsurprising when pay is so low – as it is with Harvard’s current janitorial contractors such as UNICCO as well as its in-house provider FMO. Conversations with the custodians has, time and time again, come back to the key issue: contracting out to "low-balling" contractors will lead to lower quality work, and will struggle with retention of workers. The end result is unmistakable: reduced turnover and greater job attachment from paying a living wage will likely have a real positive impact—financial and otherwise.

Moreover, the living wage studies in particular have relevance because of similarity between the types of workers affected by municipalities’ and Harvard’s living wage policies, the similarity in the types of services procured, and the similarity in ability to absorb a small cost rise. First, the vast majority of those affected are employees of contractors in service work. Second, these services are not ones that either municipalities or an university can really skimp on: be it ploughing snow or cleaning restrooms, these services will simply have to be provided. As argued before, Harvard’s competitiveness as an academic institution is just not affected by a rise in costs at the range we are advocating for. In this sense, Harvard is a lot more like a municipality than like a mom-and-pop grocery which, when facing higher custodial costs, might cut back on services.

To the extent that contractors face higher costs (however muted they may be from higher productivity), Harvard will need to absorb them. What's clear is that Harvard will be able to absorb them. Even if wages of workers rose by 25% (a high estimate), and there were equivalents of 2000 full time workers affected by this (a high estimate of likely coverage by administration’s own numbers), and there was no offsetting costs through reduced turnover, etc., labor costs would increase by about 1.5%. Moreover, such a gain would be less than 0.5% of operating costs. The added costs of providing benefits to these workers is likely to bump up this figure, but not by much at all. For Harvard’s pool of employees who have coverage already is big enough to give it leverage in obtaining cheap coverage for the marginal workers. Given the current state of endowment and the favorable distribution ratios, there is simply no doubt that the added costs represent nothing more than a drop in the bucket. Finally, given the inelasticity of demand of the services involved, such cost rise is unlikely to lead to fall in employment. These factors indicate that in the range of workers we are looking at, the "scale effect" from service cutback is negligible at Harvard, just as it is in the case of municipalities.

Let us revisit for a moment the issue of job loss. The idea that higher wages leads too job loss obfuscates the most direct way in which a living wage would add to job stability and economic security. The most pervasive threat of job erosion is not rising wages; on the contrary, it is the steady rise in outsourcing on campus. A living wage policy significantly reduces the ever-present threat faced by many Harvard employees that outsourcing will either destroy their jobs or substantially degrade them. Properly implemented, it refuses to distinguish between Harvard workers on the basis of their official employer. In this way, a living wage at Harvard would enhance the job security not only of those who are being paid poverty wages today, but of those who will be threatened with them tomorrow. For this reason, the Living Wage Campaign has received support not only from the many unorganized employees whom we have contacted, but also from all the Harvard unions for whom these threats loom heavy in the horizon.

Although this evidence indicates that overall labor demand is unlikely to fall much – if at all – from wage increases at the range we are talking about, it is possible that a poorly designed policy will allow several other types of leakages which might harm workers. By design, a living wage prevents the most important leakage – contracting out. Since it refuses to distinguish between direct hires and contract workers, a living wage policy prevents the use of outsourcing to undercutting wages and benefits. However, several other leakages remain, notably shifts in the composition of workers based on hours and tenure requirements. If the higher wages only apply to workers working more than say 16 hours a week or to workers working more than 6 months out of a year, Harvard and its contractors will have an incentive to reduce hours just under 16 or to make sure workers only work less than 6 months out of a year, etc. This phenomenon is very real: investigating the distribution of hours of janitors, for instance, reveals a "spike" right under the cutoff for receiving benefits. In terms of wages, any worker working for a single hour for Harvard or its contractors must receive a living wage of $10.25 adjustable for cost of living. In terms of benefits, the situation is a little more complicated. There are administrative costs of processing paperwork, etc., for medical benefits. We do not expect Harvard to provide benefits to someone who once worked for only 5 hours on a particular short term project. However, the hours requirements must be low enough to prevent misuse: a contractor is unlikely to reduce a janitor’s hours to 1 or 2 a week to avoid compliance – because this entails too great of an administrative burden for them. For instance, a sensible policy might be to make workers eligible for benefits for that month if either they work more than 5 hours on average a week for a month. This sorts out the truly short term workers from those who might see hours reduced for the purpose of avoiding compliance with the benefits policy.

We should not only predict, but also create the future at Harvard. It is important to talk about erecting institutional safeguards to prevent any possible abuse or perverse consequences. The living wage campaign, in conjunction with the incipient Harvard Workers’ Center, conducts periodic surveys of workers. Especially in light of recent spotty implementation of the extension of benefits to select low-wage employee groups, students have attempted to document any hours cuts to escape from paying benefits. Such surveys need to be institutionalized, and disclosure of hours and wages must be made fully and transparently. The Living Wage campaign is committed to continuing monitoring past any declaration by the university of instituting a living wage, and the administration would gain from joining forces with us at that point. As we have argued, a committee, with representatives from unions, other workers, students, faculty, and administration is a key ingredient for successful implementation. The experiences of municipal ordinances show that successful and meaningful implementation requires a transparent and quick process that will prevent contractors from gaining exemptions by peddling influence and lobbying. Monitoring by a balanced committee is also critical in ensuring that even if contractors are changed (say because a low-ball bidder drops the contract in face of a living wage), previous employees are hired back. This is not an uncommon policy: for instance when Littauer switched contractors from UNICCO to Hurley's of America at least one custodian (who had worked there for a while) remained.

Where does this leave us? A living wage would, we believe, partly pay for itself through greater productivity. Of course, it will cost Harvard something- either directly through labor costs or through some increase in the cost of some of its contracts. But these costs are negligible for an institution with a $19 billion endowment. Moreover, it will benefit the Harvard community in non-monetary ways through an increased quality of services – especially in security and cleaning services where trust is paramount. But at the end of the day, the most important thing about a living wage policy is that it will buttress the economic security of service workers on this campus. Such a policy – enforced by a balanced committee – will ameliorate the continuing downward pressure on the real wages of this sector of workers. And by treating all workers equally – be they directly employed or hired by the growing array of contractors – it will lead Harvard to take some responsibility for those who make it work.

References:

Do Living Wage Ordinances reduce Urban Poverty? by David Neumark and Scott Adams. NBER Working Paper W7606

Baltimore's Living Wage Law: An Analysis of the Fiscal and Economic Costs of Baltimore City Ordinance 442, October, 1996 (Preamble Center for Public Policy)

Impact of Detroit's Living Wage Law on Non-Profit Organizations, June 2, 2000, by David Reynolds, Wayne State University, Labor Studies Center

"A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast Food Industry with Representative Payroll Data," January, 1998, by David Card and Alan B. Krueger, NBER Working Paper W6386

"The Effect of New Jersey’s Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records", August 1995, by David Neumark and William Wascher, NBER Working Paper

"Minimum Wages and On-The-Job Training," October 1999, by Daron Acemoglu and Jorn-Steffen Pischke, MIT Dept. of Economics Working Paper No. 99-25