The living wage campaign

By Eric Heubeck
web posted October 18, 1999

If certain San Francisco political leaders have their way, it will soon be illegal for many employers to pay their workers less than $11 an hour. Small businesses owners claim they will be driven to bankruptcy if city officials succeed in enacting a proposal to establish what they call a "living wage." And that's the "moderate" proposal -- the original proposal would have set the minimum wage at $14.50 an hour. Even at $11, San Francisco's minimum wage would be the highest in the nation.

The campaign in San Francisco for a living wage is not isolated; it is only the latest in a series that gives no indication of slowing down. In fact, the activism in San Francisco comes on the heels of the passage late last year of a living wage ordinance in nearby San Jose, whose $10.75 minimum wage is currently the highest in the nation.

What is happening in San Francisco is perhaps one of the more extreme examples of a movement by municipalities across the country to require employers that do business with them to pay wages in excess of the state and federal minimum wage. The movement is led by "community groups," most prominently the Association for Community Organizing for Reform Now (ACORN), as well as the New Party (which works to elect its members to city councils and school boards), and various church groups comprising the religious left. ACORN has even established a National Living Wage Resource Center to coordinate activities in the states.

But the most important backer of this movement is organized labor. While all the member unions of the AFL-CIO strongly support these ordinances, certain unions have provided much of the manpower and done the most work to ensure the laws' passage. They include the Service Employees International Union (SEIU), the Hotel Employees and Restaurant Employees Union (HERE), and the American Federation of State, County, and Municipal Employees (AFSCME).

The modern living wage movement has existed since 1994, when Baltimore passed the first "living wage" law in the country. The campaign to enact the Baltimore law established the precedent of labor-community group coalitions. In that campaign AFSCME cooperated closely with Baltimoreans United in Leadership Development (BUILD), a coalition of religious activists centered on the city's black churches. Since then, more than 20 municipalities have adopted living wage laws, including Detroit, Boston, Los Angeles, New York City, Chicago, Portland, New Haven, Oakland, Minneapolis, and Milwaukee.

Long before 1994, some cities had passed "prevailing wage" laws. They required that employees of contractors be paid what are essentially union wages. But "living wages" are different. They are generally calculated as the wage deemed necessary to keep a three- or four-person family above the federal government's official poverty level (usually 110 percent of that level). Although the effect on the labor market is essentially the same, this newer method of calculating the wage makes it easier for proponents to argue that they are defending basic human dignity rather than merely protecting union jobs.

The term "living wage" is sometimes used simply to refer to an especially high state minimum wage. For example, members of the living wage campaign considered it a victory when in 1996 a California referendum raised the state minimum wage to $5.75 an hour. There also have been efforts in Houston and Denver to pass municipal minimum wages applicable to all area residents, and not just employees of businesses with dealings with the city or county. However, ballot initiatives in both cities were defeated by greater than 3 to 1 margins. Although the HERE local is leading efforts in Santa Monica, California, to establish a minimum wage of $10.69 an hour, currently there are no full-fledged minimum wage laws on the books in any municipality in the country.

A living wage campaign usually applies to businesses that either have contracts with a city, businesses that are their subcontractors, or businesses that receive economic development assistance or subsidies, tax breaks, or low-interest loans, or that lease land from the city. These ordinances only apply to future contracts and are not retroactive. Most living wage ordinances do not include all these provisions. For example, they will apply to contractors or those receiving subsidies, but not both. The San Francisco proposal is one of the most comprehensive. It applies even to restaurant and small business owners who rent space from the city at Fisherman's Wharf.

Depending on the local political conditions, campaign proponents can add a number of exemptions to make a living wage bill just palatable enough to pass. One exemption is the "hardship waiver," which requires an applicant to open its financial data to public inspection. While this can mean inspection by the government, it can also mean inspection by competitors as well as the "community groups" pushing for living wage laws. Other exemptions can apply to non-profits, part-time workers, and contracts for goods (as opposed to services). Furthermore, the living wage laws set thresholds on which businesses the laws apply to, based on their number of employees and the monetary value of their contract with the municipality.

The reaction of non-profits to living wage laws has been mixed. Some municipalities exempt non-profits. However, many non-profits with a left-wing orientation support living wage laws even when they are personally affected. But others protest that there is no way they can perform their mission if they are forced to pay high wages. For example, Jim Illig of Project Open Hand in San Francisco, which provides care to AIDS patients, says that if a living wage law is passed there, his organization will have to substantially cut back on its services.

Supporters of the living wage would certainly prefer to apply it to all businesses in a locality and not just those that deal with the local government. But there are two reasons why they do not pursue such laws. First, municipal minimum wage laws may interfere with the sovereignty of the state to set minimum wages (although certain cities like Santa Monica have special charter governments that provide them more autonomy in such matters). This can be a problem even for living wage laws affecting businesses that deal only with city and county govenments. For instance, when living wage laws passed in Detroit and Ypsilanti, Republican lawmakers in Michigan tried to create an "intrastate commerce clause" to ban living wage ordinances. They say the laws produce an inconsistent and unpredictable business climate. They also believe minimum wages should be set only by the state.

The second reason for targeting contractors who have relationships with the city is a strategic one. Opposition by the business community to a living wage campaign is more muted and disorganized than opposition to a traditional hike in the minimum wage. Most businesses are not affected by living wage ordinances, and so do not expend any effort fighting them. This is what living wage backers term a "divide and conquer" strategy.

Living wage supporters in L.A. claim that it has affected only 7,000 workers. Since the number of jobs paying a "living wage" because of local ordinances is relatively small, it may be surprising that unions put so much effort into passing these laws. But the unions which work the hardest to pass the laws represent large numbers of public employees or employees of companies with public contracts. They benefit disproportionately by making non-union contractors more expensive to municipalities. Union involvement was apparent when ordinances in such cities as Los Angeles and Durham, North Carolina were written to "apply to service contractors performing work that could or would have been provided by city employees," according to ACORN. In addition, many living wage laws stipulate that wage mandates should be superseded by all union contracts, so that if a union wage is higher than the living wage, employers will be bound by the union contract. Some living wage laws, such as Oakland's, include provisions which make it illegal for employers doing business with the city to oppose a unionization drive at their company, according to so-called "neutrality agreements." In other words, if a company wants to do business in these cities, it had better be unionized already, or else be ready and willing to become so shortly.

The broader labor movement and community and church groups are promoting the living wage campaign because they think it can be the prelude to comprehensive egalitarian "social justice" initiatives in the future. This would include "super-minimum" wage laws that would apply to all businesses in a city or state. But the larger point they are trying to make in the course of arguing for living wage laws is that businesses will inevitably exploit their employees if not prevented by the government. If this perception becomes widely held, living wage advocates believe a whole range of other policy initiatives will have a greater chance of success.

Living wage supporters also see their campaign as an ideal way to build bridges between unions, community agitators, and church groups for future political battles. For instance, ACORN claims that a primary benefit of the living wage campaign is to "build and sustain permanent and powerful community, labor, and religious coalitions that promote greater understanding and support of each other's work and create the potential to influence other important public policy debates."

One immediate goal of the living wage campaign is to address the large number of workfare recipients who are required to work, in most cases for the minimum wage, in order to continue receiving welfare benefits. Unions protest that workfare recipients are undermining good-paying union jobs, and see living wage ordinances as a good way to make sure that welfare recipients cannot compete for their jobs at the current minimum wage.

Where does the burden of these laws fall? That depends on the nature of the relationship of the employer to the city. If a company is a city contractor, the evidence suggests that most of the increased cost will simply be passed along to city taxpayers in the form of higher bids on contracts. But if a business is merely located on government property and is leasing land from the city, then it will be at a disadvantage to businesses not located on government property. Those with small profit margins could be forced to close.

What makes the humanitarian arguments of living wage campaigners so ironic is that some of the people who will be most hurt by higher mandated wages are low-wage workers. Employers will be less likely to hire unskilled employees if they decide they cannot afford to pay them a higher wage. Fewer people will be hired, and those who are hired will not need the job most. Perhaps anticipating this, many living wage supporters try to ensure that city contractors are forced to give first preference to those affiliated with union hiring halls or "community" hiring halls run by ACORN. This feature has already been incorporated into living wage laws in Boston and New Haven.

One very curious feature of many living wage laws is that they force businesses which receive benefits from government, whether in the form of tax abatements or subsidies, to pay the higher mandated wage. Many of these businesses are located in economic development or "empowerment" zones designed to increase investment in the inner city. It would stand to reason that if these businesses had the profit margins to pay a "living wage," then they would not need subsidies and tax breaks to attract them to these areas in the first place. The municipal governments seem to be trying simultaneously to make investment in these areas both more and less attractive. Whether businesses decide to move to an empowerment zone will ultimately depend on whether or not the value of the government benefit exceeds the cost inherent in the living wage requirement.

This was a major consideration in the recent defeat of a living wage proposal in Montgomery County, Maryland. If passed, the living wage law would have set the minimum wage at $10.44. However, prominent Democrats such as Congressman Albert Wynn and County Executive Douglas M. Duncan opposed the proposal, and Councilman Phil Andrews, the bill's sponsor, failed to salvage it by narrowing its impact. Small businesses said they would be harmed, and local politicians feared that the county's economic revitalization efforts would be seriously hampered. Duncan took control of the debate by offering a package of expanded earned income tax credits (EITCs) in place of the living wage. (Business groups tend to be more supportive of EITC programs as a way to boost the income of poor people because they offer the same income redistribution features of a living wage without distorting the market.)

The campaign to pass a living wage in Montgomery County was led by a local affiliate of the New Party called Progressive Montgomery, as well as by the Rainbow Coalition and, of course, labor unions. The importance that organized labor assigned to passing a living wage law in Montgomery County is indicated by a full-page ad that the Metropolitan Washington Council of the AFL-CIO ran in a local newspaper. Headlined "BETRAYAL," the ad called on two Democratic county councilmen to resign because they reneged on a promise to vote for a living wage ordinance made before they were elected. It is highly unusual for the AFL-CIO, at any level, to allow a confrontation with the Democratic Party to spill out into the public arena.

Although the living wage campaign in Montgomery County was a disappointment to its supporters, there were a few bright spots for activists. In addition to the training and experience a political campaign provides, the backers of a living wage were able to better establish themselves organizationally. As the New Party said, "Six months ago, the public profile of Progressive Montgomery was pretty low. Now we're perceived as a real player in county politics and as the leading progressive force in the Maryland suburbs." But the most significant result of the campaign in Montgomery County is that there are now serious efforts underway in neighboring Prince George's County to pass a living wage ordinance there.

Labor and community activists are trying to introduce living wage legislation in the city councils and county boards of dozens of other municipalities. Because Republicans control Congress, one can expect no substantial hike in the minimum wage; an increase to the level of $11.00 an hour is inconceivable. But at city council level, where the power of labor unions often exceeds that of business, such proposals are hotly debated. As long as the living wage is considered a way to help low wage earning workers -- instead of as an attempt to bolster union strength at the expense of economic opportunity for those workers -- such proprosals will continue to carry the day.

Reprinted with the kind permission of the Capitol Research Center.

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