Debate Escalates Over 'Living Wage' as Antipoverty Tool

After a long and nasty battle at the federal level, minimum-wage activists are taking their fight to statehouses and city halls. Their message: Federal minimum-wage hikes - to $4.75 on Oct. 1 and $5.15 in 1997 - are "far too little, far too late."

A new wave of proposals, known as Living Wage Laws, has hit 13 cities and states and would raise the wages of very-low-income workers by requiring state or municipal contractors - in some cases all businesses - to pay more than the federal minimum.

The debate created by these proposals has gained new urgency with the release of two studies that measured the effects of a wage hike in Baltimore and Los Angeles and found no economic damage. While the findings are expected to influence proposals now slated in Los Angeles, Denver, and Albuquerque, and on November ballots in Montana, Missouri, and Oregon, they have been hotly contested by critics who say a hike would hurt local economies and do little to help the 10 million Americans on the bottom rung of the wage ladder.

The Baltimore study, which gauged the effects of a 1994 ordinance requiring a $6.60 minimum wage by contractors, found that service contracts cost the city nearly 2 percent less. No significant negative effects, from declining investments to tax assessments, or layoffs, were found. "Predicted problems have failed to materialize," says Mark Weisbrodt, research director of the Preamble Center for Public Policy, which conducted the survey. "There is no reason to believe the experience will be any different for cities which pass similar laws."

The Los Angeles study, conducted by economists at the University of California, Riverside, examined the effect of a $7.50 minimum wage for city contract holders. "We found [it] can be implemented while causing no net increase in the city budget, no employment loss, and no loss of city services," says economist Robert Pollin.

But Los Angeles Mayor Richard Riordan (R) says the rise, plus health benefits, would boost public-contract costs, leading businesses to shun the city and causing increased unemployment. (A $7.50 wage, advocates hold, is the minimum needed for a yearly salary of $15,600, the federal poverty-level standard for a family of four.) In Chicago, where a proposed hike to $7.60 is being considered, the Office of the Budget and Management says it would jeopardize 63,000 jobs and cause a $19.8 million tax increase.

Some economists warn against generalizing from the studies. They say cities that rely more heavily on minimum-wage contracts will be more heavily impacted and that initiatives in cities like Houston, Denver, and Albuquerque are aimed at raising the minimum wage of all city employees, not just contractors.

"To use the Baltimore example to imply there will be no [impact] with other ... initiatives is ludicrous," says John Doyle, spokesman for the Employment Policies Institute, a Washington think tank. He stresses that initiatives in California, Minnesota, Montana, Missouri, and Oregon would affect state minimum wage.

But activists say the studies are an important step. "This shows that while the negative consequences are limited, the impact on communities is substantial," says Madeline Janis-Aparicio, director of the Living Wage Coalition, which helps the 40 percent of Los Angelenos earning less than $15,600 a year.

Other key economists support the studies. "I'm not surprised by the findings at all," says Maurice Zeitlin, a University of Southern California professor. "There has been a persistent myth among mainstream economists that high wages drive higher unemployment. Higher wages provide an impetus to higher productivity."

Jo Ann Hogan, president of Able Temporaries, has contracted services to Baltimore for 25 years and agrees. "We found that by paying people a little more, they did a better job more efficiently," she says. "We have found it to be a win, win, win situation."

Jackie Goldberg, a Los Angeles City Council member, says the tiny impact of a wage hike would let the city raise wages for nearly 11,000 workers with no harm to its budget. "We [expected] an impact of $40 [million] to $50 million," she says. "Now ... for a price of zero, we can help thousands in several poor areas."