Living wage laws enacted in San Jose and other major cities around the country over the last decade have been a mixed blessing, reducing both poverty and employment for the poor, according to a study released last week.
The 23-page report by the Public Policy Institute of California found that urban areas see a 2 percent decline in poverty rates a year after enacting living wage laws.
But the study also found that a 50 percent increase in the living wage reduced employment by 6 percent among the least-skilled workers. That's because the mandated wage increase acts like a tax on the use of low-skilled workers, discouraging employers from hiring them, the report said.
"You're going to help some people, but exacerbate the problem for others," said David Neumark, a senior fellow at the PPIC who co-wrote the study with Scott Adams, a University of Wisconsin economics professor. "Urban poverty falls, but there are some people who lose, and those who lose are in some sense the least well-off."
Neumark said the poverty and employment figures are not directly comparable because poverty data is based on families while employment figures are based on individuals. Neumark said the findings do not show that living wage laws are either good or bad, but rather that policymakers must consider the trade-offs, as well as other measures to reduce poverty.
"This isn't a panacea," Neumark said. "If you're concerned about low-wage workers, you need to think of other things in your tool kit. A living wage may be part of the solution, but it's not the whole picture."
San Jose's living wage law was enacted in November 1998 at the end of former mayor Susan Hammer's term. It affects employees of companies under city contract for more than $20,000, or those companies receiving more than $100,000 a year in public assistance.
Required wages started at $9.50 but have since been adjusted for inflation. Affected companies have been required to pay workers $10.72 an hour if they provide health benefits and $11.96 if they do not. Those figures rose Friday to $11.61 with benefits and $12.86 without.
Mayor Ron Gonzales had opposed the living wage during his campaign, and has maintained his position that collective bargaining is more effective.
"He thinks union contracts and the kind of competitive wages that come from collective bargaining are the most effective way of getting the competitive wages workers should get," said mayoral spokesman David Vossbrink.
Among the 18 job categories affected by San Jose's living wage law are custodial, laundry, landscaping and food service. San Jose spokesman Tom Manheim said an early estimate by the city counted fewer than 1,000 affected workers.
Baltimore enacted the nation's first living wage law in 1994. The laws are on the books in 10 of the nation's largest cities, including San Francisco, Oakland, Los Angeles, Chicago and Detroit, among others.
Unlike minimum wage laws, which affect all workers of all types, living wage ordinances tend to be limited to employees of companies under city contracts or those receiving public assistance, and tend to require much higher pay.
The PPIC study found that the laws had a more pronounced effect -- both on poverty and unemployment -- where the coverage was broader and when nearby cities and counties had similar ordinances.
California's minimum hourly wage is $6.75. An attempt by Assemblywoman Sally Lieber, D-San Jose, to raise it failed last year. The national minimum wage is $5.15.
The median hourly wage of California workers in 2003 was $14.40, according to the nonprofit California Budget Project.
Last year, San Francisco and Santa Fe, N.M., enacted citywide minimum wages much higher than the state and national requirements. San Francisco's minimum hourly wage is $8.62 for most businesses; $7.75 for small businesses and nonprofits.
Local representatives of ACORN, the Association of Community Organizations for Reform Now, which has led efforts to enact living wage laws across the United States, were not immediately available for comment. The San Jose Silicon Valley Chamber of Commerce also had no immediate comment.
The PPIC is a private, nonprofit and nonpartisan research organization established in 1994 with a grant from William R. Hewlett. It had studied living wage laws in 2002, and made the same conclusions.
Neumark said the group decided to take another look for a few reasons, including: More living wage laws have been enacted since then; earlier ones have been around longer; and the national economy has been through a recession that may not have registered in the data available before.
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