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Living wage

What is it?

Since the early 1990s, more than 120 cities and counties across the country have passed living-wage ordinances, which set wage standards for city employees, government contractors, and companies receiving public subsidies, to ensure that public spending creates good family-supporting jobs. Living-wage rates vary from city to city based on the local cost of living and political context; most range from about $9 to $16 per hour.

Living-wage policies are meant to cover the cost of living, and are often designed to account for the high cost of health insurance by establishing different wage levels based on whether or not an employer provides health-care coverage for employees — requiring higher hourly wages if health insurance is not covered. In addition to public contracting, living-wage provisions have been effectively integrated into community benefits agreements and paired with local and targeted hiring policies that can simultaneously benefit disadvantaged populations and the local economy.

Critics have argued that living-wage laws will kill jobs and put employers out of business and that the cost outweighs the benefit to workers, creating a drag on the local economy. However, research shows that higher wages not only stabilize the lives of low-wage workers and lift families out of poverty, they also benefit employers by increasing productivity and worker retention.

For more resources on living-wage provisions, see Partnership for Working Families, Good Jobs First, and National Employment Law Project.

Who implements it?

  • Elected and appointed city officials can promote living-wage requirements through executive orders, ordinances, and resolutions, and they can create specific provisions in public contracting.
     
  • Residents, advocates, and community organizations can organize campaigns to promote living-wage policies, and work with business leaders and developers to include living wages in community benefits agreements and other contracts.
     
  • Business leaders can work with community-based organizations and other advocates to ensure local and targeted hiring through community benefits agreements and other types of contracts, and to help ensure that training programs are effective and connected to employers.

Key considerations

Strong living-wage ordinances should provide for automatic increases linked to the cost of living, include a health-care differential, and guarantee paid leave for workers. Cities seeking to implement or strengthen living-wage provisions must consider a range of related legal and practical questions.

  • State preemption: State governments may preempt their cities’ ability to enact local living-wage provisions.
     
  • Setting wage levels: Local economic analysis and cost-of-living calculators (like those produced by the Economic Policy Institute or Massachusetts Institute of Technology) can help city leaders determine a living-wage rate that reflects the local cost of living. In some cases, the living wage is defined as a percent of the federal poverty level, in others, as a given dollar amount above the federal minimum wage.
     
  • Defining which employers are covered: Living-wage policies can apply to all businesses that contract with local governments or receive economic development subsidies, or they may target specific industries. Living wages can also be included as project- or area-specific provisions of a community benefits agreement, and may even cover all private businesses whose employees work on city-owned land (such as arenas or convention centers).
     
  • Cost-of-living increases: Living-wage ordinances should include some mechanism for regular cost-of-living increases, such as pegging the wage to rise with inflation.
     
  • Health-care costs: Living wages should include a health-care differential, setting different wage rates based on whether or not employers provide health insurance for their workers. Ordinances can also call for insurance to be adequate and affordable.
     
  • Paid sick leave and paid time off: Beyond increasing the value of workers’ paychecks, living-wage policies can promote greater job quality and economic stability for working people by requiring employers to provide a certain number of paid sick days and vacation days for employees.
     
  • Prevailing wages: Some living-wage laws require public works contractors to pay the prevailing wage — the usual wages, overtime, and benefits paid in the area to workers in a given occupation.
     
  • Compliance and enforcement: Cities need to budget adequate resources and personnel to proactively monitor and audit employers, investigate employee complaints, and enforce living-wage standards.

Where is it working?

Strong living-wage policies should reflect the local cost of living as well as local market conditions, provide better wages and benefits for workers, improved efficiency and productivity for employers, and increased economic activity for the city or region.

  • In San Diego, in the 10 years since the city’s living-wage law took effect, it has created positive effects for businesses and workers. Covered employees have reported higher standards of living and reduced economic pressure. Employers have reported better retention and improved quality of service, which makes contractors more competitive for future projects and keeps workers motivated. In 2009, 41 percent of employers reported that paying the living wage reduced turnover and absenteeism. Enforcement has been a key element of the policy’s success — in the first decade of the living-wage ordinance, San Diego recouped nearly $600,000 in unpaid wages through compliance reviews and complaint investigations.
     
  • In Dallas, city sanitation workers campaigned for a living wage in 2010 when they began calling for a wage increase. Five years later, Dallas City Council approved a living wage of $10.37 an hour for all contractors and subcontractors hired by the city, including trash collectors, janitors, and groundkeepers; wages of construction contractors are negotiated separately. To calculate the rate, the city council used MIT’s living-wage calculator, which uses geographically specific data related to family spending on food, child care, health insurance, housing, transportation, and other basics. Initial plans incorporated the living wage as part of the city’s bid process, awarding additional points to contractors who paid a living wage. Now, all proposals must include the $10.37 per hour wage. In the first year, about 92 percent of the contracted employees benefiting from the living-wage increases were residents of the City of Dallas.