8 Out Of 10 Labor Economists Agree: Low-Wage Workers Lose In 'Living Wage' Laws

3/14/2002

From: Mike Burita of the Employment Policies Institute, 202-463-7650

WASHINGTON, March 14 -- U.S. labor economists, living wage proponents and opponents overwhelmingly agree that so-called "living wage" laws will result in low-wage workers being replaced by higher skilled, more educated workers.

A national survey of labor economists in the American Economic Association was conducted by the University of New Hampshire Survey Center for the Employment Policies Institute. The conclusion shows nearly eight in ten labor economists (79 percent) believe that a typical living wage law applied locally would cause employers to hire entry-level employees with greater skills or experience than the applicants they previously hired. Seven out of ten labor economists (71 percent) believe that even modest local living wage proposals would cause employers to reduce the number of entry-level employees.

"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 will inadvertently attract higher skilled employees to the job," Dr. Richard Toikka, chief economist for the Employment Policies Institute said. "The lower skilled employees and applicants will find it more difficult to hold jobs or get hired in this new environment."

A study released this week by the Public Policy Institute of California also strongly shows the disemployment effect of living wage increases on the least skilled workers.

"In particular, the estimates indicate that a 50 percent increase in the living wage would reduce the employment rate for workers in the bottom tenth of the skill distribution by 7 percent or 2.8 points," said economist David Neumark, author of the Public Policy Institute study.

Living wage supporter Robert Pollin conducted a December 2000 study on a New Orleans wage increase and reported the following: "The other possible effect on employment policies would be through labor substitution -- i.e. firms replacing their existing minimum wage employees with workers having better credentials, which could occur even in the absence of any net job losses...openings for the covered New Orleans jobs would likely attract workers with somewhat better credentials, on average, than those in the existing labor pool."

"The displacement effect of living wages cannot be disputed," Toikka said. "Many low-skill workers that are intended to win from a 'living wage' increase end up losing. Proponents and opponents of living wages alike agree on this conclusion."

The Employment Policies Institute is a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment. For additional information visit http://www.livingwage.org or to schedule an interview contact Mike Burita at 202-463-7650.