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A Killer Of A Living Wage

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A Killer Of A Living Wage

March 20, 2002
Urban PolicyNYC

As if New York's economy wasn't already stressed enough, there's a renewed push in the City Council for a local "living wage" law that could hinder the city's economic renewal while reducing job opportunities for the very people it is supposed to help.

An offshoot of organized labor's traditional support for across-the-board minimum wage hikes, the living-wage movement seeks much bigger pay increases for a smaller number of jobs, on the grounds that existing wages fall below the federal poverty guidelines for family incomes.

Backed by a union-dominated coalition and co-sponsored by a majority of the 51 City Council members, the proposed New York City law would immediately set a wage floor of $8.10 an hour, increasing to $10 by mid-2006 and rising automatically with inflation thereafter for employees of a variety of city contractors and "city-affiliated" firms.

Workers lacking employer-provided health insurance would get an extra $1.50 an hour. In addition to wage hikes, covered workers would be entitled to at least 12 paid holidays and 10 unpaid sick days per year.

The largest single group of beneficiaries would be roughly 50,000 members of Dennis Rivera's SEIU Local 1199 who are employed by private agencies to provide home-care services to Medicaid recipients.

These are basically the same workers who already stand to collect $890 million in pay hikes over the next four years - effectively the same raise they'd receive under the living-wage law - as a result of Gov. Pataki's recently enacted state health-care financing package.

Thus, for Rivera's home-care workers, the proposed law appears to be little more than a redundancy - albeit one with a $10 million minimum matching contribution from the city in fiscal 2003, according to its proponents.

In addition to home-care agencies, daycare centers and firms providing temporary workers to the city government, the bill's inflation-indexed, $10-per-hour minimum wage would apply to employees of Business Improvement Districts (BIDs), landlords renting space to the city and firms occupying property that receives at least $500,000 in city economic development incentives - a category that may soon include much of the commercial and office space in Lower Manhattan.

By imposing a higher-wage mandate on such a potentially large number of employers and pressuring BIDs to either reduce services or raise assessments on property owners, the proposed law could further undermine the city's competitiveness just when it is vulnerable to losing even more jobs.

The living-wage campaign is ultimately based on unreal and exaggerated premises. Advocates stress their desire to raise family incomes, yet the latest census data indicate that most of the city's low-wage workers are single or don't live with relatives. Moreover, those workers who do support families are already eligible for substantial wage subsidies and related benefits from the state and federal governments, starting with the Earned Income Credit (EIC).

For example, a single mother of two small children who earns $7.50 an hour in New York can automatically receive more than $4,300 in EIC credits, effectively raising her income to $9.60 without including the free state-funded health insurance and federal food stamps to which she is also entitled.

In fact, since fewer means-tested benefits are available to workers as their income rises, a city-mandated living-wage would actually net out to much less than meets the eye for families with children.

Assuming, that is, the breadwinner still has a job.

All attempts to legislate higher wages in a free-market economy inevitably run into the same problem: When employers are forced to pay significantly more, they hire less. This fact of life was once again confirmed in a study issued last week by the California Public Policy Institute.

According to the California study, living-wage laws adopted by 40 cities around the country have, in fact, raised the average wage for the lowest-paid workers. But they have done so only at the cost of reducing employment in low-wage brackets.

Interestingly, the California study also finds that "sizable wage gains for unionized municipal workers" is another result when cities enact living-wage laws.

By increasing labor costs for private contractors, living-wage laws reduce the incentive for the city to consider private contractors as an alternative to public employees. This, in turn, "would be expected to increase the bargaining power of municipal unions and lead to higher wages," the study says.

In other words, it isn't altruism alone that motivates the unions to play a leading role in the living-wage campaign.

To be sure, even with exceptionally generous state health coverage and wage supplements, it isn't easy for the working poor to get by in costly New York City. The Sept. 11 attack, which resulted in the loss of thousands of low-wage, entry-level jobs, has made it even tougher.

Unfortunately, the City Council's "living wage" is only likely to make matters worse.