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'Living Wage' Would Hurt Young, Unskilled

by Diana Furchtgott-Roth, Dec 14, 2010
Photo by Chris Devers

New York City, which faces a predicted budget gap of $3.3 billion this fiscal year, is considering an expansion of the reach of "living wage" legislation that would make the deficit worse, drive jobs out of the city and raise unemployment among low-skill workers.

The bill pending in the City Council (Intro 0251) would extend New York City’s requirement for payment of a 'living wage," defined by the Merriam-Webster dictionary as "a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living." The new wage would apply to jobs connected with any new development projects that benefit from city subsidies greater than $100,000, both construction work and continuing employment thereafter.

Under present law, the "living wage" applies to contractors doing business with the city in a variety of areas, including food service homecare for seniors and daycare.

The pending bill has nothing to do with alleviating poverty in New York. Without the legislation, the vast majority of people in New York and elsewhere already make more than $11.50 an hour.

Rather, the bill would hurt the young and the low-skilled, people whose skills and productivity are worth less than $11.50 an hour. Forcing employers to pay them that much would prevent them from getting hired and getting their foot on the first rung of the career ladder. Without the bill, most of those making less $11.50 an hour will be paid more after a reasonable time on the job as they acquire experience and do their jobs more efficiently.

Behind the Bill

Under the proposed law, qualifying projects that receive direct subsidies or tax breaks would be required to pay workers $11.50 an hour or $10 an hour plus health benefits.


City Council members Oliver Koppell and Annabel Palma introduced the legislation, and Bronx Borough President Ruben Diaz Jr. supports it.

One force behind the bill is the Retail, Wholesale and Department Store Union, whose members would be beneficiaries of the proposed law. The bill has 28 sponsors, and needs 26 votes for a majority on the 51-member council. The council would need 34 votes to override an expected veto by Mayor Michael Bloomberg.

Bloomberg has criticized the plan, saying, "It's a nice idea, but is poorly thought out and will not work."

Hurting the Poor

How would the new law operate? It would require firms that accept $100,000 in city subsidies to pay higher wages for some jobs than they pay now, or risk losing the subsidy money.

Not only would the construction contractors be required to pay the "living wage," but later any employees in the development itself. So cashiers and retail workers at a shopping mall would also be paid "living wages."

The prospect of higher construction and operating costs likely would stifle development.

This misnamed variant on the minimum wage would be particularly detrimental to low-skill workers, because the gap between their wages and the "living wage" is greatest. Employers would have an incentive to lay off low-skill workers and replace them with more experienced and skilled hands.

According to University of California (Irvine) economics professor David Neumark, "the adverse effects of living wages fall more heavily on the least-skilled individuals, who are least likely to be employable after a mandated wage increase is enacted." In other words, because a "living wage' is essentially a tax on low-skill labor, less of it is hired.

The truly insidious aspect of the "living wage" movement is that the purported beneficiaries are the losers. The people primarily harmed by the legislation are the poor and the young, those who would otherwise willingly work for less than $11.50 an hour because it is better than the alternative: earning nothing at all.

Job markets are dynamic, and workers earn more with greater experience. Take away initial job opportunities and the "living wage" movement condemns millions of young Americans to unemployment, a loss of opportunity and a lesser future. Young Americans living under the "living wage" movement face horrible choices: accept unemployment and limited opportunities; work illegally and risk getting caught; or move to a more enlightened community.

Admittedly, most cities now face financial shortfalls, but the “living wage” contributes to their dismal fiscal situations by raising the cost of employment for municipal employees and contractors. Just three examples: Boston, which has a "living wage" of $12.79 an hour, has a budget shortfall of $42 million. San Francisco, with a "living wage: of $11.54 or $12.33 an hour, has a gap of $483 million. Chicago, with a "living wage" of $11.03 per hour, has a gap of almost $655 million.

Paying contractors a "living wage" adds to cities’ budget pressure, because they can no longer save money by contracting out jobs and relying on more-efficient private firms. Expanding such a requirement, hence raising employment costs, would increase the deficit and raise New York's unemployment, now at 8.3 percent statewide and 9.2 percent in the New York metro area.

New York has stood up to terrorists, looked them in the eye and proclaimed that it will not be defeated. The city should have little trouble standing up to bullies who would make life harder for young and unskilled workers. It is time for New York to stand tall again and defeat further "living wage" legislation.

Diana Furchtgott-Roth, an adjunct fellow at the Manhattan Institute, is former chief economist of the U.S. Department of Labor.

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