Edited transcript of living wage conference call, February 11, 2004

Timothy J. Bartik, David Neumark, Robert Pollin, David Reynolds, Richard Sander, Richard Toikka, Aaron Yelowitz, Mark Brenner

Research output: Contribution to journalArticlepeer-review

Original languageEnglish
Pages (from-to)103-116
Number of pages14
JournalEconomic Development Quarterly
Issue number1
StatePublished - Feb 2005

Bibliographical note

Funding Information:
Bartik Timothy J. W. E. Upjohn Institute 02 2005 19 1 103 116 sagemeta-type Conference search-text 10.1177/0891242404268876ECONOMIC DEVELOPMENT QUARTERLY / February 2005LIVING WAGE CONFERENCE CALL Edited Transcript of Living Wage Conference Call, February 11, 2004 Edited by Timothy J. Bartik, W. E. Upjohn Institute Moderator: Timothy J. Bartik Participants: David Neumark, Robert Pollin, David Reynolds, Richard Sander, Richard Toikka, Aaron Yelowitz, Mark Brenner Bartik: The purpose of this is to have a discussion on the living wage issue that will accompany this collection of articles on the living wage in Economic Development Quarterly. What I envision is not something where we would nitpick fine points of the articles but instead a talk about some of the broader issues that are raised by the articles and by the entire living wage issue. Let's first talk a little bit about what people see are the most important areas on which this research on the living wage is really in agreement and what are the important areas where we really do disagree, and I'll leave it open to anyone to start out on that topic. Pollin: I'll speak up. I think there are some basic factual things that we can all agree on. The first fact that we could all agree on is that the national minimum wage at $5.15 is roughly 40% below where it was in real terms in 1968. If somebody walked into McDonald's in 1968 and McDonald's was obeying the law, they would pay someone somewhere on the order of $8.30 to $8.40 an hour in today's dollars, depending on how you measure inflation, as a minimum wage. The sharp decline in the minimum wage reflects broader trends in society: wage stagnation or decline for most nonsupervisory workers, increased inequality in wage income and wealth, and a basic problem of creating decent jobs. These are some facts that not too many people would disagree with. Yelowitz: The decent jobs thing seems more controversial. Pollin: Okay, I'll pull that one off the list of agreements. If we can agree at least on some of these basic things about the minimum wage, I think we might agree also that there are real concerns, which I share, as to the efficacy of the minimum wage as a policy intervention or variations of the minimum wage such as the living wage ordinance. These would be the effects on employment, lay- offs, and displacement. I think that we agree that there are concerns about the effects of living wage laws on business relocations. We can agree that there are potential effects on government budgets that may be harmful. I think that this group can broadly agree that we would adjudicate these ques- tions through empirical methods, that there isn't a theoretical model out there that is going to tell us exactly what is right and what is wrong. We are all committed to various forms of empirical research. It's fair to say that up until at least a couple of years ago, the types of research we did was based on prospective evidence or modeling. We increasingly now use retrospective evidence, like actually observing what happened when living wage laws were implemented. This should be increasingly the focus of anyone researching living wage laws. Toikka: Bob, it's hard to disagree with much of what you said because it's so broad, talking about potential effects and so forth. What I'm struck with is how difficult this is as a research ques- tion. As someone who was trying to fund living wage research for anumber of years, I find the typi- cal response in academia is either "I'm not going to be able to get that published" or "I don't have 103 AUTHORS'NOTE: Mark Brenner is an assistant research professor in the Political Economy Institute at the University of Massachusetts­Amherst. All the other participants are authors in this focus issue. ECONOMIC DEVELOPMENT QUARTERLY, Vol. 19 No. 1, February 2005 103-116 DOI: 10.1177/0891242404268876 © 2005 Sage Publications the resources to do this research well enough, so I really don't want to do it." Certainly there hasn't been any national interest, either at foundations or the federal government, to fund a really fine evaluation of living wage laws. So we are stuck. I compliment David Neumark because I think he really pushed the envelope considerably in trying to use the CPS (Current Population Survey) data with a national regression-based methodology. But in terms of what we agree on, I'd like to try to narrow the range of agreement about specific effects. We agree that there can be these effects, but don'twereallyneed tosay whether we'reinagreement on therough magnitude of theseeffects? Pollin: I wasjusttrying toidentify placesof agreement and how you might pursue thequestions. I was going to get to my list of disagreements. Neumark: Let me jump in for a minute. There is an increasing number of papers that are getting at some of these effects and are doing this, as Bob Pollin put it, retrospectively--that is, before and after analyses--the kind of research we do on other policy issues. Dave Ferris has a paper based on two surveys of contractors and noncontractors in Los Angeles. Mark has a paper on Boston con- tractors. Dave Reynolds's paper tries to look at employment changes among nonprofits. Candace Howe has a paper on home health care workers in San Francisco, although that is a very strange labor market. Michael Reich has a paper on the San Francisco airport. These papers are looking at many questions. But--and this may reflect my own bias--two core questions have dominated the living wage debate. The first is the disemployment effects--that's usually the first thing to come up because it's the first thing on which business groups focus. In my opinion, the more important question is the second core question: What are the distributional effects of the living wage? On the employment effects question, if you read the papers, it looks like there's a lot of disagreement, and in that sense I don't really think there is a consensus. I read the papers a little differently and think there's not quite as much disagreement as it appears. Maybe we can get into that later. But at least we are now getting an accretion of papers that are getting at the employment effects question. They use different data sources, as Bob Pollin pointed out, but pretty much the same methods, which is a good thing, and there isn't a consensus yet. Part of the problem is that this is a hard problem to study. People are studying unusual samples that either they've finagled out of a city office or that have fallen into their laps. Perhaps the answers differ for those reasons. On the distributional ques- tions, I think we are still missing much of the needed work. There's my research, which tends to point to positive distributional effects, but everything else I see on the distributional side is pro- spective research: Bob Pollin has some of that in his work; Rick Sander and Doug Williams have some of that in their work. But in any event, in my opinion, these are the two key issues that we ought to focus on. Sander: One question about the distributional issue is whether there is any reason prospective studies are not going to be reliable indicators of what actually happens. Why can't we just use data from the CPS and look at what are the wage ranges in which people receive benefits and what are the household incomes of those workers? The data show consistent patterns. The living wage under any of the scenarios in which it's been looked at has fairly perverse distributional effects. And I really haven't seen any analyses using systematic national databases that come to a different conclusion. Bartik: Rick, are you offering that as an area in which you think there is agreement? Sander: I don't think it's been acknowledged, but I think that there is a fair amount of agreement thattheliving wageisnot aterribly efficientway of gettingmoney intothehands of poor families. Bartik: You think everyone agrees, for example, that the EITC (earned income tax credit) would be better? Sander: Correct. Yelowitz: Tim, why don't you go around and ask people? Bartik: Okay, we'll go around. Mark, what do you want to offer on this? Brenner: I interpret the national data slightly differently from how you did, Rick. What seems to be clear is that the people in the wage ranges that we are talking about, although they may not always fall below the federal poverty line, are not people who are overwhelmingly wealthy by any reasonable measure. When you start to use living standards measures, which seem to be more appropriate to the cost of living in places like L.A. or San Francisco and Boston, you find that over- whelmingly you are seeing people who fall below these basic needs thresholds or near poverty 104ECONOMIC DEVELOPMENT QUARTERLY / February 2005 thresholds. And so I'm surprised when you conclude that there are perverse distributional effects of the living wage. As far as the EITC versus minimum wage, you could frame the question as what's the more efficient micro-policy measure in terms of getting money in the hands of poor peo- ple. But I don't think that is the right analytic approach to the question about living wages versus the EITC. You need to have that conversation in a broader context about what are your policy goals, what does the minimum wage achieve or a living wage achieve, and what does an EITC achieve? Is it even possible in this kind of context to talk about a local EITC as a realistic option? We only have two examples of a local EITC. One is in Montgomery County, where the payouts are embarrass- ingly modest. The other example is in Denver, Colorado, where the payouts are based on surplus TANF block grant money, which is going to disappear in the future, so it's not a sustainable pro- gram. So there's a whole different set of issues that you have to consider when you talk about the EITC versus a minimum wage or living wage. Sander: I have two quick points. I would disagree that the data really show that even low- income families are the main beneficiaries of living wages. In our article, we find that with the Santa Monica proposed minimum wage, only about a third of the benefits would have gone to the bottom half of the income distribution. So that's a perverse effect. And secondly, I think Mark is agreeing that if we can actually get effective EITC laws passed, those would be better targeted at low-income people. The disagreement is on their politicalfeasibility. I would say that if you look at the energy that has gone into the living wage movement, if that was redirected toward EITC-type programs, we'd have lots of local EITCs around the country. There's been very little sort of grass- roots effort to mobilize people behind local EITCs. Even so, a number of states and two counties have adopted local EITCs. Reynolds: I think we have moved into the areas of disagreement because there is disagreement on what the goal is of the living wage. A lot of the opposition defines it as an antipoverty program that should be judged by its effects in eliminating poverty. I think a lot of living wage supporters define it as a social justice issue. There's a subtle difference here because what supporters are say- ing is that the issue is paying people the full value of their work and that employers should pay peo- ple fairly. These are political issues; government is involved in these questions and is setting standards through its contracting and through its subsidies. So the issue is one of using that public money to set basic standards for wages. We want to encourage firms to compete with higher wages and productivity and high-quality products, not by slashing labor costs down to the minimum. And I think that'san important difference intermsof how you evaluatewhether theselaws areachieving what they are setting out to achieve. Neumark: First, many advocates of living wages do define it as an antipoverty policy. Further- more, the only reason we care about those issues, David, is because of the trends Bob talked about: There have been stagnant wages, and we have had a widening in inequality in both wages and fam- ily incomes. That's really the motivation for living wage laws. If I turned around and showed you that living wages kicked low-skilled people out of work and increased poverty--and, by the way, I think the firsthappens and the second doesn't--then I don'tthink you'd think the living wage was a very effectiveway of pursuing socialjustice.In my view, thecriteriathatboth supporters and oppo- nents want to use to evaluate the living wage are pretty much the same. Reynolds: There isthecommon criterion of, Does theliving wage leadto disemployment or lay- offs or lack of investment? However, this question--who are these workers affected by the living wage, and can we definethemasbeing in some arbitrary definitionof poverty?--isbeside thepoint because what living wage advocates are saying is that people employed with public money ought to be paid a fair wage. Yelowitz: Many living wage laws are targeted toward some measure of the poverty line for a family of three or four, so I think it's indisputable that poverty alleviation is implicitly a goal for proponents. I don't see how there could be much disagreement on that given that the wage levels are based on the poverty line. Bartik: In this discussion, is the living wage targeting people below the current poverty line? Or is the living wage movement implicitly saying that the poverty line is too low? Perhaps the living wage is really targeting a larger group whose income is below some multiple of the poverty line, perhaps 1.5 to 2 times the poverty line.LIVING WAGE CONFERENCE CALL105 Pollin: I want to interject a bit of historical perspective. When I first got involved in the living wage issue in Los Angeles in August of 1996, it's true that what I was asked to estimate would be the effects of raising the citywide living wage to a level based on a poverty line for a family of four. So certainly the poverty line was a benchmark. Now what's happened over time is an interesting change in my own thinking and also the thinking of the living wage movement. This has been to question what we mean by a living wage, what we mean by someone earning a wage that is a decent family basic wage. Thinking on this has evolved and that has stimulated a lot of research into defin- ing basic family budgets for different communities. We are now at the point at which there's incredibly detailed information as to what constitutes a basic family budget in various specific communities. Now one can disagree over the exact numbers, but we do have numbers for how much it costs to pay rent for minimally decent housing, how much you're going to have to pay for transportation, child care, and so forth. That has been an advance. This advance is consistent with what David Reynolds was saying with respect to the living wage movement being a stimulus for people questioning the poverty line and trying to construct a better measure of what constitutes a minimally decent living standard. And, in fact, in my own paper in this collection, that is the first question I asked: What is the living wage? And of course we can't put an exact number on it, but we can propose a way of addressing the question that is much more nuanced than itwas when I first got into this issue. Sander: I agree with Bob that there has been good discussion over the last couple of years about reexamining the poverty line. There is a lot of consensus that something like 150% of the poverty line is an interesting and useful range to talk about for examining the distributional effects of living wage laws. At the same time, it's very important to not lose sight of important dynamics within that group. If we're going to use a $27,000 threshold, we need to be sensitive to what the effects are on people in the $20,000-to-$27,000 range versus the people who are below $15,000. One of the things that really struck me about David Neumark's analyses for this collection was that the living wage appears to have much better effects for people who are in the $20,000-to-$30,000 range than for people who are ator near the poverty line. The disemployment effects are higher for some of the lowest income and lowest wage people. So that's one important problem. The other issue is that it does become a somewhat academic argument when we consider living wages that are as high as $20 an hour because that is pretty close to the median wage of the United States. It's hard to imag- ine what kind of distributional policy could actually achieve that type of goal. Bartik: David, would you summarize your work that way? Neumark: Yes, I think that summary is correct. We end up concluding, in a result that's not surprising, that there are some beneficial effects of the living wage near the poverty line or somewhat above the poverty line up to, say, 1.5 times the poverty line. These are people who are not minimum-wage workers for the most part. They are earning wages in the $7 or $8 range and therefore are the ones who are more likely to be affected by wage increases from the living wage, while the employment loss appears to occur at the bottom of the wage distribution. As we say at the end of our paper, an important point to keep in mind in these discussions is that it's not so much an either/or question; that is, we don't necessarily have to either choose an EITC or choose a living wage. Bob's point about living standards is correct, but we have to be careful linking that to living wages. The real question is, How do we get more families to some minimally acceptable level of income? It needn't be through a living wage; itcould be through an EITC, a higher minimum wage, something else, or a combination of policies. What we find is that wage floors may have some ben- eficial effects at some point in the wage distribution, which is not surprising if you think about the underlying economics. The least skilled people are the ones who are likely to get hammered by a wage floor. I think everyone's work recognizes that possibility. Everyone talks about labor-labor substitution. We know who gets hurt by labor-labor substitution: the people at the bottom of the skill distribution. You don't want to say one policy is good and one is bad necessarily, but we need to recognize that if wage floors have a role to play and have some positive distributional effects, we also need to think about other policies that you combine with wage floors to protect those at the very bottom who may be priced out of the labor market simply because their skills aren't high enough. 106ECONOMIC DEVELOPMENT QUARTERLY / February 2005 Bartik: What do people think of how big an issue for living wages is posed by the problem of substitution of more skilled for less skilled workers? Reynolds: In our surveying of nonprofits, we found no evidence of this problem at all. In fact, the only displacement effect we could find was among one nonprofit that had two people that they hired for a couple of hours a week, and they let those people go until they could raise some more money. Neumark: Do you mean layoffs or labor-labor substitution? Reynolds: In this case, the employer was just laying them off. But as for this idea of labor-labor substitution, we need to consider the nature of these jobs. Bob Pollin's paper made the case very well that it is unlikely that someone hired as a janitor or security guard will be displaced by some- one that has a B.A. as a security guard. The skills you are dealing with at this level of employment are often soft skills: coming to work on time and the employee's overall attitude at work. The most likely outcome of improving workers'wages is to improve workers'attitudes. The workers see this as a more lasting job, and the employer ends up with better motivated workers. But you are unlikely to actually change who is employed in these jobs. This idea that somehow the person who went to security guard college is going to displace the poor person who doesn't have those formal skills does not fit the nature of these jobs. Toikka: I read Bob's paper, and I agree with that point basically. However, there are other ways that the employer could respond. For example, Bob made the point in the paper--and I think it's a good one--that in this particular labor market, the employer doesn't really know a person's poten- tial productivity before hiring. But for the employees who are already there, an employer could work harder to keep certain workers there, and over time that would have an impact on the skill level of the workforce and you would not be hiring other people. Reynolds: Butthat'sgood because asaresult,people aren'tjusthopping from job tojob tojob. Toikka: Yes, but by reducing the turnover, it reduces the job opportunities for other people in the market who may be looking for a job. Pollin: I'm glad that this has come up because I think this also distinguishes an important differ- ence between EITC and wage mandates: The living wage or any other wage mandate willhave effi- ciency wage effects, as David Reynolds was describing, and an EITC doesn't. A dollar of government subsidy is not the same in my view as a dollar of increase in wage. It's therefore likely that you'll get, in many cases, a different worker by raising the wage. It's not going to be a dollar- for-dollar gain in productivity relative to the wage increase. But there is a significant effect, and I just heard Dick Toikka agreeing with that. Toikka: Let me just say what I'm agreeing with. Sure, you are drawing from a different labor market, but the problem is the lower skilled workers are being frozen out of jobs. Whenever you have that type of substitution, the question is, How does this labor-labor substitution come into being? Does it come into being through layoffs, or does it come into being through attrition and replacement? I'm not convinced from anything that I've seen that productivity necessarily rises in response to wages, but I do think there's an impact on turnover. Pollin: My reading of the evidence is that there are going to be productivity gains through improved morale and effort, but I would agree that the major factor increasing productivity will be reduced turnover and absenteeism. Our point of disagreement, Dick, might be that you suggest that reduced turnover is a negative effect of the living wage, whereas I think reduced turnover is a posi- tive effect. But what does that mean for job opportunities when you reduce churning? My view is that the real determination of job opportunities is more macroeconomic than microeconomic in nature. So with respect to the living wage, my view is that it creates opportunities for minimally decent jobs. The macroeconomic environment is the main determinant of the availability of jobs. I wouldn't want increased churning to substitute for a decent macroeconomic environment that creates job opportunities. Sander: Bob, we're talking about job losses among the lowest skilled due to the living wage. Pollin: That's right. Sander: These are probably the people who need the jobs the most. For example, what was your reaction to the Adams/Neumark finding that there were no impacts below one half the poverty line? Did that concern you as a living wage advocate?LIVING WAGE CONFERENCE CALL107 Pollin: As David knows, we have some disagreements about his methodology, but let's assume his conclusions are right. Of course, the impact on the lowest income families is a matter of con- cern. I acknowledge thatthere are likely to be some labor-labor substitution effectsdue to the living wage. Where I disagree with you and the way you've quoted me is that the evidence, from research by Mark and me and others, is that these labor-labor substitution effects are modest. Not nonexis- tent, modest. If there are modest negative effects, we can address those modest negative effects through other interventions. One example came up when I testified before the Harvard Living Wage Committee, and they were concerned about these labor-labor substitution effects. Mark Brenner pointed out to me that Harvard has an internal labor market. Nobody had really thought about it much, but they have it. They have a hiring hall policy in place. What I suggested at Harvard was that if you're concerned about the labor-labor substitution effects, you can activate your hiring hall to give opportunities to people who might get squeezed out when you raise the living wage at Harvard. Bartik: But Harvard is distinct from other living wage situations precisely because Harvard controls not only its wage policy but also its hiring, promotion, and training policy. The same situa- tion occurs when a city decides on a wage policy for its own employees. But what if instead of set- tingaliving wage for itsown employees, acityistrying toinfluence theactionsof other employers: city contractors, either nonprofit or for profit, or companies that are coming into town and getting a property tax abatement? With a living wage, you are trying to control the wage policy of these employers, but you don't necessarily have direct control over their hiring policies. Now perhaps you would argue that there are a few living-wage cities that are trying to control or influence hiring policies. In any event, I'm curious what you would say about the distinction between a Harvard- type situation, where you control both wages and hiring policies, and the more normal living wage situation where you only control the wages. Pollin: Good point. When we did the Santa Monica study, we did propose that they implement an active hiring-hall-type policy for Santa Monica such that it would address the problem of labor- labor substitution. The general point is that if we see a problem, let's target an intervention that will address the problem. I don't think that a hiring hall is going to counterbalance a massive labor- labor substitution type problem. But if labor-labor substitution is a relatively modest effect, then we can deal with it by measures such as active policies to bring people that are less credentialed-- and I'm not saying less skilled, I'm saying less credentialed--into the labor market and actively promote job opportunities for them. For example, in Washington, D.C., right now a living wage movement is starting, and it's being led by a group called Jubilee Jobs. Jubilee Jobs is precisely an organization that tries to find jobs for the least skilled--people who would be the ones out- competed through the labor-labor substitution effect of a living wage ordinance. Jubilee Jobs reflects what I think is a growing maturity on this issue. They are saying that people are getting jobs, but they are such bad jobs that people can't sustain themselves in them and build a decent life. So we are trying to combine something like hiring-hall-type policies with living wages, and I think that combination is workable. Bartik: Let's give other people a chance to comment on that. Do people feel that labor-labor substitution can be offset by other policies? Sander: I really don't think so. And I don't agree that labor-labor substitution effects are mod- est. Bob Pollin's own work in Santa Monica, when it compared workers near the minimum wage and workers at a 50% higher wage range, found substantial differences in demographic character- istics between those two groups of workers. In my work, when comparing workers in the $6-to-$8 range with workers in the $10-to-$12 range, there was about a 40% to 50% difference in the makeup of the labor pool. These differences occur even when we only have very rough measures of observable demographic characteristics, such as years of education and fluency in English. If you take into account all of the unobserved productivity differences among workers, I think the labor- labor substitution effect is going to be much, much higher. And that stands to reason, doesn't it? If an employer were hiring people at $11 an hour instead of $6 an hour, we would expect to get a workforce with radically different productivity characteristics. No one has shown a good reason why private businesses are not going to obey those general laws of economics when they do their hiring under the influence of a living wage. Some of the research that has been done has looked at 108ECONOMIC DEVELOPMENT QUARTERLY / February 2005 businesses that are covered by a city contract that are forced to pay a relatively modest living wage increase, and these businesses don't, in the short term, change their labor force. That's very differ- ent from saying that there's not going to be an effect of replacing lost workers with higher skilled workers. You're going to change your hiring criteria if you're paying $9 an hour instead of $6 an hour. Reynolds: I just want to note that we've found one area of agreement where the debate has changed rather drastically. You still sometimes hear the opposition to living wages claim that because of living wage laws, existing workers are going to be laid off and that employers are going to leave the city. But among those who have researched the issue, the debate has shifted. Both pro- ponents and opponents of living wages agree that employers are not going to leave town; the exist- ing workers are not going to get laid off. What we are now debating is whether, in the future, are there workers that are going to be blocked out of jobs because of living wage laws? That's a signifi- cant shift in the debate. The debate has also shifted from looking at actual employers and existing workers to hypothetical future effects. Brenner: We do have some evidence on the issue David just mentioned. Rick, you were talking about employers changing the standards attached to jobs because of living wages, and you were arguing that this might not happen in the short term, but in the medium to long run there would be a change in hiring standards. Well, we went to talk to employers 3 years after the Boston living wage was implemented, and we didn't find any evidence that firms that were forced to raise wages to comply with these laws reported any differences in their hiring standards. Sander: What reason did they give for not changing their hiring standards? Brenner: We didn't ask them why they didn't change hiring standards; we just asked them whether they changed the standards. What we did find is that some people were changing their method of hiring. The main change is that employers were using the career centers that were pro- moted by the living wage ordinance. The Boston law requires that contractors provide job opening announcements to certified career centers around the city of Boston, and contractors must make every effort to try to hire workers through those career centers. What we found is that about a quar- ter of the firms who reported actually having to raise wages were now using these job centers, these career centers. So the living wage is a good policy not only because it allows you to raise the wage, but it also allows you to implement a complementary policy, such as Bob Pollin was describing, where you encourage contractors to use these career centers as a way to open doors to people who might otherwise be closed out of the job market. Sander: I just want to respond on two points. First, when we talked to employers in Los Angeles, and we initially asked them, "Did you change your hiring policies?" they often said no. But when we did follow-up questions and asked them for more details, it turned out frequently that they had changed their hiring policies. Employers in answering a questionnaire can be defensive about what their policies are. They don't want to give an impression that they are discriminating against anybody. But when you explore more in depth the economics of what they are doing, they generally do agree that they have changed their policies and they are getting a different quality of worker as a result of having the higher wage. In Los Angeles, that's been one of the big arguments made as to why the living wage is a good thing: It leads employers to have much higher quality workers, not because of efficiency wages in the sense of the same workers becoming more produc- tive but because of changes in hiring. Second, in our discussion, the distinction hasn't been drawn too often between city contractor ordinances and city minimum wage ordinances. I agree with David that you're getting fewer busi- nesses that are now making the bogus argument that they're going to flee the city because of a con- tractor ordinance--that is, a living wage law applied to city contractors. That was always a silly argument. I think we all agree that living wage laws applied to city contractors do not cause a busi- ness flight effect. Furthermore, if there is a 100% pass-through of the higher costs to the city, as I think there generally is, there's not going to be a big disemployment effect. But the effects may be very different if there's an area-wide minimum wage increase. Yelowitz: At the conference session that David Neumark put together in January, at the Ameri- can Economics Association meetings, Michael Reich presented a paper. I just pulled it up on my computer while people were talking, and Reich was writing about the San Francisco airport livingLIVING WAGE CONFERENCE CALL109 wage. Among the effects of that living wage is that it puts in a standard that workers have to be high school graduates. This clearly is a case of labor-labor substitution because without the living wage law, not everyone at San Francisco airport would have a high school diploma. Toikka: There's another analytic point, though, that you should bear in mind. Even if the employer doesn't explicitly change hiring standards, if the applicant pool shifts, you could very well find higher quality workers being hired even if the employer is using the same standards. Some of the job applicants would not have applied if the wages were lower, and many of these new applicants will be higher credentialed workers. Neumark: I want to go back to David Reynolds's point about the debate shifting because we're not so much focusing on instant layoffs due to living wages. I don't see that as a fundamental shift. Business groups may have had an incentive to say that there would be instant layoffs, but all researchers recognized that the notion that you lay people off the day after the wage goes up is kind of silly. When the last federal minimum wage increase went into place, a Wall Street Journal reporter did a survey a few days later and reported no layoffs had occurred as a result, and this was considered news. But it shouldn't have been news because we always expect many effects of a higher living wage or minimum wage to occur slowly. Firms are changing the way they are doing production, and firms prefer to make changes through attrition to reduce the costs. So I don't really see this as a fundamental shift in the debate among researchers. But I want to shift our discussion to a different point. In Aaron and Dick's paper, they make an important point about earned income versus transfer income that we haven't talked about yet. Their research looks at the net effect on people's income of these different policies, and I think that's an important point that we haven't discussed much. Also, I hope one of the things we come back to is what we think should be done next. Some readers of this symposium will be graduate students who want to work on this topic and are probably asking, "What kind of research should I do on living wages?" Bartik: I want to get to that topic a littlelater, but first, David, I wanted to get some discussion on another issue that comes up in your work. The issue is "business assistance" living wage ordi- nances or economic-development-related ordinances. It seems to me that there is considerable dis- agreement over whether or not living wage regulations for businesses receiving economic development assistance are really important or effective. Neumark: To summarize briefly, in our work we find no effects at all on low-wage or low- skilled workers, or on poverty, of contractor living wage laws, and we tend to find effects of the business assistance living wage laws. The mystery is why. We have some estimates that city con- tractors might at most make up 1% of local employment. There's also a general sense that business assistance living wage laws don't cover as many jobs as that, although I think there's almost no hard evidence. For future research, that would be a nice question to get a handle on. In discussions of our work, we have faced well-deserved skepticism about our business assistance results in the face of our inability to show how many workers are covered by these business assistance laws. In another paper, Scott [Adams] and I have tried to look at the key features of living wage laws, with the goal of seeing whether the effects of business assistance laws may be due to some other feature of these laws that happens to be correlated with business assistance provisions. One feature of liv- ing wage laws that coincides with business assistance provisions is whether there are living wage laws in nearby jurisdictions. But it gets hard to tease out whether stronger effects of living wage laws are due to business assistance provisions or the presence of nearby jurisdictions with living wage laws. Bartik: So, David, you accept that business assistance living wage ordinances probably don't directly cover many employees? Neumark: People who are very involved in the day-to-day work on these things tell me that in the cities that they know, it's hard to argue that there are much greater numbers of workers covered by business assistance living wage laws than by contractor living wage laws. So I think it's equally plausible that stronger effects of living wage laws are driven by having many living wages in close- by jurisdictions. This may be an easier economic story to tell. Sander: Perhaps living wage laws have more effects where there is a strong low-income- worker-based labor movement? If you have strong labor backing for a living wage ordinance, it's going to be broader in scope, you're going to have lots of ordinances within a single metropolitan 110ECONOMIC DEVELOPMENT QUARTERLY / February 2005 area, and you're also going to have a lot of organizing of other low-income workers. We've seen all those things in Los Angeles, for example. Neumark: It's hard to quantify what you're talking about. Our attempt is by no means perfect but a reasonable first stab. Stephanie Luce's forthcoming book tries to classify implementation of the laws into three categories, from strong to weak enforcement and implementation. And that classification turns out not to have much explanatory power for how strong the effects are. But I don't fundamentally disagree with you, Rick. You have a reasonable hypothesis, but so far we only have a limited ability to test it. Bartik: What do other people think? Are business assistance living wage laws and their effects more of a reflection of some broader movement for higher wages, including efforts by the union movement? Reynolds: Our experience in Detroit is that a business assistance living wage law might be able to cover many more workers, but perhaps a more important point is how living wage laws affect a broader debate about how public money is being used. There has been a shift over the past 20 years toward more government privatization and subsidy use, and there is a related broader movement questioning how subsidies have been used in this country and the standards or lack of standards that are attached to them. In some of the empirical work on living wage, there seems to be this exclusive focus on workers and how many are covered by these laws, and are they living in poverty or not. But this ignores the broader question of whether the living wage is reorienting the overall economic development subsidy programs of local governments. Critics of the subsidy programs say that these subsidies too often reward companies that are lowering the community's standards; thattoo many companies receiving subsidies pay wages below average, even for theirindustry; that too many companies receiving subsidies are not really creating the jobs that they're promising. A living wage is part of an effort to reorient these programs and say, "Are we rewarding the business behavior that we want to see, are we encouraging companies that are going to raise community standards, or are we simply handing over the tax base to anyone who says 'jobs'?" There hasn't been a lot of research on this that looks at cities after living wage laws have been passed. A survey done by the Brennan Center of 26 communities with living wage laws found that city economic development people generally were positive about living wage laws. Even some officials who opposed the living wage before it was passed found that by having standards, it made their job as economic developers easier because they could say to would-be company investors that "we have standards, we're not just giving away the farm." Neumark: The story that David is telling is an interesting one, which is that the effects of living wages may not mainly depend on their measured coverage of workers. Contractor living wage law says if you want a contract, you have to pay this wage. Who gets the contract is a formal process with strict rules. On the other hand, economic development is a more informal process in which local governments might say to people who are considering locating a business, "We might cut you a dealand we might not, but we're concerned about wages, and to get a deal, you're going to need to pay higher wages." This may end up having much broader effects even though you can't say Worker X is covered and Worker Y isn't. An interesting case in California is the turmoil about Wal- Mart. Wal-Mart has not yet located any of their super centers--which have grocery stores--in Cal- ifornia. We have a strike of the grocery workers because the grocery store chains are saying that if we don't reduce costs, Wal-Mart is going to come in. There's a tremendous amount of opposition to Wal-Mart coming in. The opposition is framed in this way: When a Wal-Mart store locates in a city, it costs the city something, whether or not there are subsidies, in terms of traffic and the envi- ronment. Furthermore, Wal-Mart is going to drive down wages. This is leading to a lot of commu- nity resistance. Wal-Mart is very much on the offensive here, putting out studies about all the good they will create. There is a story here that suggests these business assistance provisions in living wage laws perhaps do more to change norms, to change the terms of the debate. Pollin: We should distinguish two separate issues. One issue, with respect to the business assis- tance coverage of living wage laws, is just how much of it has happened so far? And that is an empirical question on which I disagree with David Neumark. At some point, that empirical ques- tion will be answered. The second issue is whether there should be coverage of employers receiv- ing business assistance and how broad the coverage should be. That's the issue that I think DavidLIVING WAGE CONFERENCE CALL111 Reynolds was just getting at and David Neumark was basically agreeing with. When I first started looking at living wage laws in L.A., we actually were looking at printouts of different types of sub- sidy programs or tax abatements recipients, and their numbers are huge. My conclusion was that if you're not getting some kind of deal out of the city of Los Angeles, you're a sucker. So my initial thought, which is consistent with some of David Neumark's results--which is that if you were really serious about covering all firms receiving any kind of government subsidy or assistance of any kind, then just about every business is going to have to pay the living wage in L.A. Now, this didn't prove to be the case, and this was because the business assistance provision of the Los Angeles ordinance was written in a very narrow way. This then raised the empirical questions of identifying who fell under that very narrowly targeted business assistance provision. Now, as for whether there should be a broader coverage of employers receiving business assistance, I endorse that as a matter of principle assuming it is crafted correctly. As people know, I endorse citywide ordinances that cover all employers, citywide minimum wages, if they are crafted correctly. Neumark: I don't think I meant to endorse living wage ordinances that cover all employers receiving business assistance. I was just describing how the debate has been framed. Bartik: To finish our discussion, I want to turn to the issue that was brought up earlier: What kind of research do we need on living wages? I'd like to hear from each of you in turn, starting with Aaron. Yelowitz: My take on the whole living wage literature is that we need better experiments in order to get more consensus. Everyone would agree that measuring coverage of living wage laws is hard in standard micro-data sets. Everyone would agree that the laws tend to be fairly limited at the cur- rent time,but it's hard to predict who iscovered in current samples. Also, perhaps the living wage is endogenous--that is, places have passed living wage laws when the law is not going to have as big of an effect. So the barriers to doing good research in the area are these empirical problems. We need better research because we don't have the kind of experiments that we have for other policy issues. For substantive research topics, what brought me into this debate in the first place was my study of welfare programs and seeing single parents with children being used as a primary motiva- tion for passing living wage laws. My research in the future on the living wage will be focused on the benefit side. Many people are asking about unintended consequences of living wage laws and whether these consequences are big. A key debate is whether living wage laws are, considering their overall effects, achieving what we want. Brenner: My perspective on needed research, as I'm sure people who have read my work know, is that there's not much we can learn about living wages with standard micro-data sets: The sam- pling rates are just too low, and we cannot figure out who's covered and who's not covered. Even in an industry such as janitorial services, in which many city service contractors are concentrated, my calculations suggest that less than 6% of janitors in Los Angeles are covered by that city's living wage ordinance. Therefore, you can't use an individual's industry to identify who is covered. To echo Aaron's point, we need more local data-gathering exercises. We need to do more before-and- after studies of cities that pass living wages. Ideally, we'll be able to generate grant revenue that would allow us todo controlled experiments inwhich we compare workers inthesamecitywho we know are covered with workers we know are not covered, so that we have some viable control group. That's the work that I'm doing right now in Boston, trying to use the Boston living wage expansion as a natural experiment. We have survey data before and after the experiment. We have a control group thatwe're going to try to use to examine employment effects and other effects. That's where I think the energy needs to go: getting more local data. One thing we haven't talked about is that we also need to do more research on city costs. There are many cities that have several years of experience with living wages, yet there are relatively few studies that look at the actual budget impacts of living wages. I disagree with Rick's view that there's a 100% cost pass-through. In all of the cities I've looked at, with one exception, the cost impact of living wage laws is negligible. The one exception is Hartford. We found that for a few of Hartford's service contracts, we did see sub- stantial cost pass-throughs on the order of 30%. I also think we need more employer surveys. Finally, I think it would be great if we could get enough money to do more studies such as they're doing at the L.A. Alliance for a New Economy, where they are actually doing a probability sample of covered workers. This would help us accomplish Aaron's goal of trying to focus on the benefits 112ECONOMIC DEVELOPMENT QUARTERLY / February 2005 of these laws. Anyone who has tried to study workers in specific workplaces knows that it's really difficult to actually do probability-based sampling in these workplaces. So I think that we should try to get money to do a citywide household survey of workers along the lines of what's been done through Russell Sage/Rockefeller grants. Sander: There are three things I'd like to see happen with living wage research. First of all, fol- lowing up on what Mark said, on the cost impact issue, what we need are studies that look in depth enough to understand exactly how wage increases translate into cost impacts on both business and on cities. If we just look at contracts and find little change in the city budget or, as Mark found in some cases, actual declines in city spending on these contracts, that really doesn't tell us much because we don't know what happened to the quantity of work done. We don't know if there was enforcement of the living wage laws. We need to look at specific invoices, and if a particular city contractor had a million-dollar increase in payroll, we need to discover how they covered that cost. Did they cover it internally, or was there a cost pass-through? The research that we've done in L.A. has been exhaustive and difficult to do, but we have obtained definitive answers on a couple dozen contracts. We found that in 90% of the cases, there's at least a 100% cost pass-through. But this research needs to be replicated elsewhere, using this methodology that looks at specific contracts in detail. A second issue is that living wage research needs to do a better job of weighing costs and benefits against each other. David Neumark's work, for example, is highly tantalizing, but it's hard to draw a conclusion from his research about the desirability of living wage laws unless we go back and find out what were the costs due to creating this living wage law? How much did the law actu- ally benefit workers given what Andre and Dick find about the loss of welfare benefits due to higher living wages? So what was the real net benefit for workers, and how does that weigh against the costs? Bob Pollin, in his New Orleans study, found some loss of city revenue and a possible loss of jobs. We have to weigh those costs against exactly how much benefit there is for poor house- holds or whatever household group we think is entitled to the benefit. I've seen very few benefit/ cost comparisons in living wage studies. The research reports isolated findings that are hard to bring together to make an overall assessment. The third change I'd like to see is less ideologically driven research. Living wage research has been dominated by partisans on both sides. I'd like to see the Ford Foundation or the National Science Foundation launch a large-scale study of some of these empirical questions we've identified. As long as the research is being done by people who are largely perceived as advocates, we're not going to have closure on many issues. Reynolds: We need more direct research in which researchers survey and talk to employers and the workers. In many living wage debates, a Chamber of Commerce person speaks on behalf of the business community, but the employers covered by living wages don't even show up in the debate. We need more information from sitting down with businesses, after the living wage has been implemented, and finding out what happened at a detailed level and whether the living wage law has changed the businesses'strategy. We got some insight from our research talking to nonprofits, but we need to broaden such research to more employers. One example is a recent study of employ- ers covered by Tucson's living wage ordinances done by two researchers at the University of Ari- zona. It will be published this fall in Working USA. Interestingly, half the covered employers supported the law despite having to make payroll adjustments, and the study generally points to some interesting employer motivations both pro and con. We also need to talk more to workers because there's a danger of defining and trying to measure effects of these laws without having the workers' own words describing these effects. I think targeted research that tries to get a sense of how workers define the effects of living wage laws will help us generate better questions. Finally, there needs to be more of the research that the Brennan Center did--that is, talking to and survey- ing city officials and broadening that research to not only look at whether overall contract costs went up but exploring whether there was a change in the way the city did contracting or the way economic development was being framed and operating. In the city of Ann Arbor, one of the big- gest employers covered by the living wage was the contract for the parking structures, and the city council just gave that employer an award for increases in productivity and performance. So clearly the living wage had an impact in that case. There's also a need to not just focus on the larger citiesin our research. The advantage in researching smaller communities is that collecting more direct dataLIVING WAGE CONFERENCE CALL113 from workers and employers becomes more manageable. Smaller cities and towns have not been talked about much in previous living wage research. Toikka: In future research, we need a balance of different types of studies. I have mixed feelings about local studies. They need to be well designed and implemented, but I'm concerned about low response rates to these local surveys, and I'm concerned about whether we have an appropriate control group to serve as a basis for comparison. I'm concerned about whether we will able to mea- sure all dimensions of the programs being researched. It's difficult to do these types of evaluations right. My concern is if these local studies are not done right, they just become part of a political debate. Many of these local studies, perhaps because they are being conducted in the community, become politicized. I agree with Rick Sanders that I would like to see some foundation, such as the National Science Foundation (NSF), sponsor more living wage research, because this research would be above the criticism that the research is being captured by any particular political interest. It would also be preferable if the researchers were balanced and it was clearly stated at the outset that this was going to be the best possible methodology. I think NSF might be a better sponsor for such research than the Ford Foundation. But I also think that there are some things we can learn from national surveys. I would encourage David to continue his work with the CPS (Current Popu- lation Survey), and Aaron and I are continuing to do some work with the SIPP (Survey of Income and Program Participation), and the Decennial Census possibly could be mined for some cross- sectional information on what's happening across different cities. The advantage of the national surveys over the local studies is that even a good local study gives you only one data point and you can't generalize from that to a general living wage policy and itseffectiveness. On the other hand, if you do something on a national level that reasonably captures the effects of these living wage laws, then you've got a much stronger estimate of what the effects of different types of living wage programs would be. Pollin: I'm not going to mention any names of foundations. The work should proceed, and if foundations give us money, that's great, but if they don't, we'll have to figure out how to do it some other way. No matter who throws money at this issue, we are not going to avoid controversy. Con- troversy is good. We should be able to stand up to controversy and move forward and advance the research. There have been important advances done by people other than myself in this retrospec- tive work. I would cite David Reynolds's work; I would cite Mark Brenner and Stephanie Luce's work; I would cite Michael Reich's work on the San Francisco airport ordinance. I find that I learn an awful lot from people who actually bore in on specific situations and ask about the issues we care about, such as employment effects and how businesses are adjusting. This is very detailed research. I understand Dick Toikka's point that this kind of research is too localized, but I think we can begin to develop generalizations from the range of local evidence that we have. So I'm learning a lot from this kind of work. I'd like to see more research such as what Michael Reich did with San Francisco, where he actually just asked the recipients of the living wage, "What did it do to change your life,ifanything?" To me,thatisafundamental question, and he cameup withsome interesting answers. I look forward to more work of that kind. This local research is going to be the foundation on which we can construct better national surveys, and these national surveys can fillin some of the gaps remaining after the various local studies. I am also interested in more research on the broader issues raised by the living wage movement. One issue that is important for any understanding of living wages or minimum wages are these "ripple effects"--thatis, what happens to workers above the mandated wage rate. A Ph.D. student of mine, Jeanette Wicks-Lim, is doing her dissertation on that. I think she's going to have some useful things to contribute. On the relationship between the EITC and living wage, I'd love to see some really serious, committed research on that by serious scholars. I am also interested in the broader relationship between living wage laws and the general issues that I raised at the beginning, of declining living standards for low-wage workers and rising inequality in society. One issue that some noneconomists have addressed in a good way--and I'd like to see more research and discussion on this--is the way in which living wage laws have changed public discourse in this country. Someone at the Employment Policies Institute actually said that the term "living wage" has now entered the culture, and it's a concept that people think about. I saw this vividly, for example, when I was in Santa Fe, New Mexico, in February 2003. Peo- ple were up until 3:00 a.m. at a council meeting debating questions of social justice in their 114ECONOMIC DEVELOPMENT QUARTERLY / February 2005 community. This was an incredibly powerful statement about what people care about. I would like to see more research on how the effects of living wages have been rippling out. There are good peo- ple doing work on this. So I would like to see that combination of research on broader issues with research that bores in on detailed effects. Neumark: I'd echo a lot of the recommendations made by others about what research we need. A few interesting issues have come up; let me just touch on a couple of those issues and then get back to directly address the question of needed research. The question of ideologically driven research is a tricky one. In the area of living wage research, more than any other I've worked in, at least at the beginning, a disproportionate share of the research has either come out of organizations that have a clear agenda or from people who have strong prior views one way or the other, although it's starting to change now. We can complain about it, but there's not much we can do about it because these are the people who are interested in this topic. When I talk to journalists, I advise them to ask themselves if they know the answer before they read the paper, and if so, perhaps don't give the paper quite so much weight. We all do that to some extent when we read research. What can we do about it? First of all, I've been pleased that in this living wage debate, researchers have shared data and computer programs. Even though people have different points of view, everyone is trying to be an honest broker in the sense of addressing what the data say and how we figure this out. We may still disagree on interpretations or disagree on the goals of living wages. But we as researchers still have to maintain that culture of research that says that, even if some of us begin with a strong point of view, we must separate what the data say from what questions we choose to ask. In this debate, I think people have been successful in separating their points of view from the answers about what the data show. To help resolve these research debates and move away from ideologically driven research, we need to bring in more people who are outside of the current research circle--for example, we should try to bring in conventional labor economists who haven't thought about this issue and see what they come up with. They may then get their students involved in living wage research, and over time the problem of ideologically driven research takes care of itself. In terms of actual research projects, I have several ideas. First of all, I think we allagree, perhaps to varying extents, that the prospective studies should be put to bed as a research tool. I think pro- spective studies are useful to cities contemplating very unusual laws; there was no way to provide research evidence from retrospective studies about the Santa Monica law because it was so differ- entfrom thelaws thatwe haveon thebooks. The prospectivestudies alsohavearole to play in help- ing us evaluate, after one gets estimates from a retrospective study, whether these estimates make sense. In the discussion we had before about living wage laws covering business assistance, the prospective studies are trying to get some information on what is actually going on in cities with business assistance living wage laws, and this information gives our regression estimates a reality check, which is useful. The debate over whether we should study living wages using nationally representative samples, or local studies of affected workers, is a false debate. A point I make in the paper is that both types of studies are important. From a policy perspective, if there's an issue about whether the living wage will help people in a city, we want CPS-type research using nationally representative data. From the point of view of understanding the microeconomic issues of labor-labor substitution, efficiency wage effects, and similar issues, we want the firm- and worker-level studies of the affected workers and employers to try to figure out what's going on. I think we want both types of research, with suitableattentionto the questions people have raised, such as Mark's concerns about how many workers are really covered by living wages and Dick's concerns about the difficulty of doing direct research with affected workers and employers, as opposed to working with secondary data. Finally, we didn't spend much time today talking about Aaron, Dick, and Andre's research on transfer income. I think their findings are really important. This research is trying to discover not simply what is the theoretical marginal tax rate on the added earnings from living wage, but, in practice, what really happens? How much extra net income do families get from a living wage? We need much more work to pin down the answer to that question. Then we need to grapple with whether itis better to earn a given level of income through a mandated wage as opposed to getting it through transfer income, and if so, how much better is it? The political implication of their work isLIVING WAGE CONFERENCE CALL115 that a city might not be as inclined to support a living wage if what's going to happen is that their employers are going to pay more and fewer federal transfer dollars are going to flow into local households. From a city's perspective, that's a pretty damning argument against the living wage. But from the point of view of long-term effects, is it better for people to be working than to depend on transfer income? There are obviously all sorts of prior views on this question, but I think trying to address it as an empirical matter is important. Bartik: Does anyone else have anything they want to mention that they think has been left out of this discussion? Neumark: I would add that discussions are a useful way to get researchers to talk about what's in the various papers and try to reconcile differences. Sometimes that gets testy or unpleasant; on the other hand, there's nothing worse than doing research that's ignored. At some point, when researchers get different results, you need to have these debates. The same thing happened in the minimum wage debate I was involved in, and that was a lot testier and a lot less pleasant. But I still maintain that ultimately what was going on in the minimum wage debate is that researchers were getting different results and then debating why the results differed and which methods or data were better, which led to other researchers jumping in and trying to resolve these issues. The debate may be difficult, but ultimately that's how we get to an understanding of what the data show. Will this answer every question? Of course not, but these debates are helpful. Bartik: Dialogue is a time-tested way of learning things, from Socrates to the present, and that's what today's discussion has tried to encourage. Thank you all for participating. 116ECONOMIC DEVELOPMENT QUARTERLY / February 2005

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  • Development
  • Economics and Econometrics
  • Urban Studies


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