Living wage is a mixed bag in fight against poverty
In the recent film K-Pax, Kevin Spacey plays an alien tourist
critical of the earthly contradiction. He observes: And you call
that human? On occasion, even at the municipal level,
politicians take the time to confront some of humanitys larger
moral dilemmas, social inequality being one of these. In Lansing, Mayor
David Hollister is concerned about employees of companies he does business
with whose wages are close to the poverty line.
Hollister has announced plans to try to improve their lot by making
city contractors pay their employees a living wage sufficient
to meet basic subsistence needs. (Hollister was unavailable for comment.
The mayor has invoked a policy of not permitting city employees to speak
to City Pulse.) If the proposal passes in June, seven businesses servicing
the city with janitorial, temporary and security staff will be required
to pay employees at least $11.31 an hour. These businesses all have
city service contracts for more than $50,000, and the new hourly wage
would include the employers contributions to healthcare.
The living wage campaign is active in 125 cities and communities throughout
the country, with ordinances enacted in 77 of these, so far. Chicago,
Denver, Boston, Los Angeles, Minneapolis and New York are among major
cities with ordinances. In Michigan, the list includes Ann Arbor, East
Point, Ferndale, Pittsfield Township, Warren, Ypsilanti and Ypsilanti
Township. Ingham County is very close to finishing a policy and submitting
it to the county commission. To some degree well be making
an example, Commissioner Chris Swope. He believes the government
should use public money to leverage the low-income population and encourage
an influx of jobs that pay above poverty level wages. The exact rate
of the living wage is calculated by taking 125 percent of the federal
poverty level for a family of four about $18,000 a year. Introducing
the policy would cost the county approximately $200,000 a year,
wage policies supported by Lansing and other city governments respond
to the fact that Congress last raised the federal minimum wage of $5.15
I am personally very concerned about the issue, asserts
MSU economist John Melcher, associate director of the schools
Center for Urban Affairs. Melcher thinks its good to send
out a message, as Hollister intends. But it needs to have
some scientific underpinning. Other factors like the cost of living
or the number of full-time jobs in the region should be also taken into
account. With regard to that, little research has been done.
The first person to analyze the effects of cities that introduced living
wage policies is Harvard graduate David Neumark, who joined the MSU
economics faculty in 1994. In March 2002, the Public Policy Institute
of California published his report, How Living Wage Laws Affect
Low-Wage Workers and Low-Income Families. Neumark looked at 36
cities with living wages across the nation. He found that if a city
passes a living wage 50 percent higher than the states minimum
wage, it raises the wage of low-income workers on average by 3.5 percent.
The study estimates that this increase would be substantially larger
in cities such as Cambridge, Mass., St. Paul, Minn., and Berkeley,
Calif. where living wage laws extend beyond city contractors
to include businesses that receive some form of assistance from the
If Lansing applied the living wage concept just to city contractors,
believes Neumark, It will have a pretty minimal effect.
However, Swope thinks Hollister is sending out positive signals to private
businesses. Moreover, many regional employers already pay more
than the living wage. Melcher hopes this policy could at least
open up the discussion about living conditions among low-income
people, if not increase the wage structure at the low end.
According to the Michigan Department of Career Developments 2000
statistics (the most recently available), 59,580 Greater Lansing residents
make less than $11.31 an hour. Thats 27.2 percent of all wage
and salary employees in the area. Within this, a large group of employees
make less than $8 an hour including 24,820 residents who work
as manicurists ($6.37 an hour), bartenders ($6.69), waiters ($7.04)
and other low-paid jobs. Officially this group represents 11.3 percent
of the overall working population. But the real figure is presumably
much higher, as this statistic does not include workers employed fewer
than 2,080 hours per year (roughly 20,000 residents).
Employment figures dont tell the entire truth, asserts
Melcher, who knows people with jobs that pay less than the minimum wage.
While Lansings unemployment rate, at 3.7 percent in April, (Michigan
and the United States are 6.0 percent) is amazingly low, there
is lot of people down there who are not in the statistics because
theyre not registered at the unemployment office.
People who never have enough to pay the bills belong to
the target group of Marcus Jefferson, director of the non-profit Lansing
organization Closing the Gap, which teaches low-income groups to build
computers. No doubt, raising the wages sounds like a good idea,
and some might even benefit. But in general its not that simple.
Getting a well-paid job depends on education. I have people here who
are illiterate. Jefferson suggests the city should implement training
for soft skills.
John Palmer, deputy director for workforce programs at the Michigan
Department of Career Development, confirms: Our data shows that
the more education and training an individual receives, the more earning.
Some critics point out that higher wages encourage the hiring of better-skilled
employees, leading employers to take fewer low-skilled workers. Living
wage increases are not an efficient way to help the poor. By requiring
employers to pay a higher wage for positions once considered entry-level,
they inadvertently attract higher skilled employees to the job,
says Richard Toikka, chief economist for the Employment Policies Institute,
a non-profit research organization in Washington. To improve low-wage
workers situation, Toikka suggests drawing peoples attention
more to the federal program Earned Income Tax Credit. A family
of four earning $12,000 a year would receive over $4,000 in refunds.
That would be a $2 an hour increase in pay.
A 50 percent subsistence wage increase, as introduced by the living
wage program in some of the 35 cities in professor Neumarks sample,
typically reduced employment among low-wage workers by seven percent.
What probably happens is that low-skilled workers lose their jobs
and then compete for low-paid jobs. Service jobs now count for
over 50 percent of employment in the tri-county area, says Paul McConaughy,
senior vice president of Capital Area United Way. Theyre
paying low income. Its exactly this low wage sector that keeps
We pay everybody $6.50, says Salim Furrha, manager of the
Club Cappuccino at East Lansings Crossroads Food Court. Nobody
would work for the minimum wage. Accordingly, $11 seems like a
dream to Furrha. Thats way too much. If we could raise our
prices more then we could probably get away with it. In non-service
sector jobs, entry-level employees demand an even higher starting wage.
Jim Sleight, who manages hiring at H-Net, Humanities and Social Sciences
On-Line, comments: With the economy doing so well in the last
few years, we cant get good entry-level student staff under $7-8
per hour. More qualified employees are paid more.
Republican state Reps. Andrew Richner and Rick Johnson are trying hard
to stop Lansing City and other local governments from enacting living
wage legislation. Richner sponsored House Bill 4328 in February 2001,
which he wants lawmakers to vote on before they break for summer in
early June. The bill would support a statewide minimum wage and prohibit
living wage policies in Michigan including all existing ordinances.
This is an issue that should be decided on the local level, because
its their tax money, asserts AFL-CIO lobbyist Ken Fletcher.
The trade union points out that the Michigan Economic Growth Authority
Act requires employers receiving state tax breaks to pay an average
of 150 percent of the federal minimum wage to workers. Indeed, it would
be ironic if the state were to prohibit the city government from doing
something required under state law.
Still, the Lansing Regional Chamber of Commerce sees only negative effects.
Its published a sample protest letter on its Web site to send
to county commissioners. The chamber is campaigning against living wages
because it believes Ingham County would no longer [be] a pro-business
Swope, doubts any negative side effects for the economy. Just recently,
he met with colleagues from Washtenaw and Monroe counties with
living wage ordinances since 2001 - to talk about their experiences.
They couldnt report any bad impacts on the economy.
Improving the overall standard of living would support the entire community.
To deny the living wage, says Swope, would be like keeping GM
from giving their employees more raises.