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The Living Wage: A Necessary Idea for the Early 21st Century

Wed, Jun 8, 2011

Victor G. Devinatz
StreetWise Contributor

Wage inequality has been increasing in the United States over the last four decades. For example, from 1973 to 2005, real wages of the top 10 percent of wage/salary earners went up at least 30 percent while for those at the 50th percentile and below, real wages rose by only 5 to 10 percent. Preliminary evidence indicates that wage inequality continued to rise during the Great Recession of 2007 to 2009, where 40 percent of the jobs lost occurred in high-wage industries, defined as positions paying, on average, from $19.05 to $31.40 per hour. Jobs are returning to the U.S. economy, 244,000 in April 2011, although positions in low-wage industries (paying on average $9.03 to $12.91 per hour) constituted 49 percent of recent job growth. And it is hard to obtain any job with the unemployment rate remaining stubbornly high at 9.0 percent.

The problem is that many of these newly-created jobs do not pay enough to meet their employees’ basic needs. According to a Wider Opportunities for Women report released earlier this spring, single workers require $30,000 a year to cover necessary expenses. For single parents with two children and for two-income households, the respective figures needed for required expenditures, including childcare, increase to $58,000 and $68,000, respectively. With the U.S. minimum wage currently at $7.25 per hour ($8.25 for Illinois) working 40 hours per week year round, grosses $15,080 annually ($17,160 in Illinois). Thus, the minimum wage is woefully inadequate as a wage floor. Enter the living wage as a modest alternative.

Characterized as a wage based on an estimation of the official poverty threshold for a four-person family, the living wage is based on the idea that people who are employed full-time, and their families, should not have to subsist in poverty. The modern-day living wage movement dates to 1994 with the adoption of the first living wage statute in Baltimore.

Living wage ordinances spread to New York City, Santa Clara County (California), Milwaukee, and Jersey City by 1996. In 1997, Los Angeles implemented regulations that included benefits absent from previous living wage statutes. One decade after Baltimore, 130 living wage ordinances were in effect in the U.S. including metropolises such as Denver, Minneapolis and St. Paul.

Moreover, living wage campaigns have appeared at U.S. colleges and universities in defense of underpaid campus workers. In fact, it is the 10th anniversary of the most noteworthy campaign, which occurred at Harvard University. Beginning in April 2001, students conducted a successful 21-day sit-in, insisting that the university compensate all Harvard employees a minimum living wage of $10.25 per hour along with benefits. After the sit-in’s conclusion in May 2001, hearings led to the students winning several demands, including higher wages and reduced outsourcing.

One might argue that living wage statutes do not make economic sense, but they are eminently affordable. Robert Pollin and Stephanie Luce’s study calculated the cost of implementing Los Angeles’ 1997 living wage ordinance, which included a wage of $7.25 per hour, $1.25 per hour for health care and 12 paid days off annually. They discovered that it would cost, on average each year, $68 million, or 2.1 percent of Los Angeles’ $3.3 billion budget. Moreover, the researchers found the plan’s average cost comprised 1.5 percent of the companies’ total production expenditures for businesses covered by the statute. Additional economic analyses confirm these figures. The cost to most companies impacted by living wage statutes ranges between 1 percent and 2 percent of an average business’s total operations. Thus, most firms could easily absorb these small cost increases through modest boosts in prices and productivity.

Even when living wage campaigns are unsuccessful, they educate the public about the detrimental effects of the increasing wage inequality and the proliferation of low wages in the United States. While it is difficult to determine the effect of the living wage movement on public consciousness, living wages have received backing from some unexpected sources. Since 1999, articles appearing in several prominent business publications including Business Week, the Wall Street Journal, and Entrepreneur have advocated paying employees living wages. Furthermore, more employers have expressed support for living wages, contending that increased employee morale and reduced employee turnover result.

The implementation of living wages is hardly a panacea for reversing growing wage inequality and for solving all of the problems of the economically disenfranchised. It is, however, a step in the right direction. With citizens recently attacking House Republicans at town hall meetings for passing a budget that guts Medicare, such behavior might also lead the public to considering the plight of the economically disadvantaged who work for low wages. If and when this occurs and U.S. economic problems remain, living wage campaigns may experience unrivaled success due to the activity of concerned citizens and anxious workers who fear for job loss and the erosion of middle-class lifestyles.

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