Eight Out of Ten Labor Economists Agree: Low-Wage Workers Lose in ‘Living Wage’ Laws

  • Publication Date: January 2003

  • Topics: Living Wage

Washington – 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%) 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%) 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. They are blunt tools that target everyone to get at the few in need. When employers are forced to pay a much higher wage for positions once considered entry-level, higher skilled employees enter this end of the labor pool, displacing the low-skill workers that living wage laws promise to help,” Tom Dilworth, Research Director for the Employment Policies Institute said. “Worse still, those displaced by the living wage also lose the Earned Income Tax Credit and other substantial benefits, which actually place them above the Santa Fe’s proposed increase.”

A study released by the Public Policy Institute of California and touted by Living Wage advocates 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.”

“All sides agree on the displacement effect of living wages,” Dilworth said. “This feel good solution could wreak havoc on the lives of many low-income workers in Santa Fe.”