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August 6, 2001 Issue

Impact of Local "Living Wage Ordinances" on Your Compensation Program

There is a growing movement in the United States to establish "living wage" laws. Unlike the minimum wage, a living wage is the lowest level a full time employee is paid to remain above the official poverty level. The focus of these ordinances is organizations that contract services to a city or accept funds and subsidies from a city. Those leading this movement have set their sights on all employers operating within a living wage city. This wage would vary between states and cities. Proponents state a living wage of $8.50 per hour is required to keep a worker supporting a family of four above the poverty line.

Current living wage laws use a $6.50 to $12.50 an hour spread. Supporters believe that employer paid health benefits should also be mandated. A large grassroots movement coordinated by Association of Community Organizations for Reform Now (ACORN), has been successful in having living wage ordinances passed in St. Louis, St. Paul, Boston, Oakland, Denver, Chicago, and Detroit. They are currently focusing on Albuquerque, New Orleans, Little Rock, Dallas, New York City, Washington, D.C., and Sacramento. They have declared New Mexico, Illinois, and Massachusetts as focus sites for statewide legislation.

According to ACORN, living wages have little or no negative impact on business. Fears of unemployment and businesses relocating have not happened. Their studies show that in cities with a living wage, taxpayer costs have been reduced by reducing the need for food stamps and health entitlements granted to workers with earnings below the poverty level. ACORN contends that the current minimum wage of $5.15 is 26% below the 1980 minimum wage when adjusted for inflation. The fact that 40% of minimum wage earners also support a family points to the need for a mandated living wage. ACORN professes the following advantages of a living wage ordinance:

Federal, state, and local governments benefit. In addition to paying more FICA and income taxes, much of the wage increase will be spent locally on taxable goods that support local city government. Local merchants will prosper.
Higher morale accompanies better pay scales. Higher pay can be expected to bring about greater job satisfaction and improved performance in jobs under this system.
Standardizing the lowest wage scale will level the playing field for contractors and in competition for workers. Cities with a living wage ordinance require contractors to pay their employees this wage, making contractor bids more level. If extended to all, companies will compete for employees based on the nature of the work or the work environment rather than pay.
Strong protective language requiring no discrimination in hiring or on the job.
Additional employee labor organizing protection requiring employers to:
- remain neutral on union organizing,
- provide a list of employees to a union,
- allow union representatives access to employees,
- recognize a union based solely on card-signing, and
- agree to binding arbitration on the first contract if negotiations fail within the first sixty days.

While ACORN states independence from labor influence it is clear there is a labor agenda at work.

The following is a summary of current living wage activity in the United States.

Fifty-eight ordinances on the books since the first in Baltimore in 1994.
Wages range from $6.25 (Milwaukee) to $12.00 (Santa Cruz, CA).
Thirty-seven ordinances require employers to provide health insurance.
Two (Boston, New Haven) require firms to work with the community to fill jobs created with or supported by a city subsidy.
Seventeen ordinances cover non-profit organizations that accept funding from the city. (Berkeley, Santa Cruz, San Francisco, Cleveland, San Fernando, Hartford, Ypsilanti, Cambridge, MA, Detroit, Oakland, Boston, and Los Angeles.)
Seven include mandated vacation benefits.

The following campaigns are underway:

Birmingham, Al;
Little Rock, AR;
Sacramento, Santa Barbara, Marin County, Richmond, Santa Monica, Santa Rosa, San Diego, San Mateo, CA;
Bridgeport, New Briton, CT;
Grand Junction, Boulder, CO;
Washington, D.C.;
Gainesville, FL;
Davenport, Iowa City, IA;
Champagne-Urbana, IL;
South Bend, Indianapolis, IN;
Manhattan, Lawrence, KS;
Lexington, Louisville, KY;
New Orleans, Baton Rouge, LA;
Brookline, MA;
Montgomery County, MD;
Portland, ME;
Kalamazoo, Ann Arbor, East Point, MI;
St. Louis County, MN;
Missoula, Bozeman, MT;
Greensboro, NC;
Portsmouth, NH;
Camden, NJ;
Albuquerque, NM;
Ithaca, Niagara County, Rockland County, Syracuse, Rochester, New York City, Westchester County, Suffolk County, Albany, NY;
Reno, NV;
Columbus, OH;
Oklahoma City, OK;
Salem, Eugene, Medford, OR;
Philadelphia, Pittsburgh, PA;
Providence, RI;
Charleston, SC;
Knoxville, TN;
Dallas, Austin, TX;
Salt Lake City, UT;
Charlottesville, Richmond, VA;
Burlington, VT; and
Racine WI.

While it is difficult to argue with the spirit of these ordinances, there are implications on base compensation program design. In recent years, organizations have moved towards market-based compensation systems. These systems are sensitive to influences of supply and demand of qualified staff. The supply of qualified entry-level employees has been low, impacting the rise of minimum start rates to more than $7.00 in most communities. As this rate increases, all others above it are raised accordingly. In the past, IT and clinical specialty positions have seen a reduction in supply and a dramatic increase in start rates. Registered Nurse start rates have increased over 8% in the past 12 months, reflecting the recent shortage facing healthcare organizations.

With the recent wave of layoffs in some communities the influx of available workers has increased. Communities rely on other employers or new employers relocating to the community to hire these workers. In many cases, these workers are brought in at an entry level, sometimes just above the federal or state minimum wage. Proponents of the living wage say the ordinance will have no impact on this situation. Logic dictates that an employer will gravitate to a community that allows for a free market process rather than a community that dictates their wage, benefit, and labor relations strategy.

For those in a living wage community, be advised that future pay system designs must take the living wage ordinance into account. These cities have established the market threshold that you must operate within, regardless of economic conditions. You may be at a disadvantage competing with employers located outside the city limits, yet close enough to compete for the same workers.

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ISSN Number 1549-0467