The Wider Benefits of Local Minimum Wages
Requiring local employers to pay their workers more than the federal minimum might cost jobs, but the benefits of higher wages outweigh the costs.
As the minimum wage continues to decline in value and the income gap between the top and the bottom only widens, some localities, in addition to states, are seeking to enact their own minimum wages. New York City, for example is asking permission from the state to enact its own minimum wage in a city where one set at twice the national minimum of $7.25 an hour still would leave a single parent with two children below the city's defined poverty level of $50,000.
The conventional wisdom, of course, holds that such a move would not be a good idea in a city where businesses are free to move across local boundary lines into neighboring suburbs where new minima don't apply. But when the city of San Francisco enacted a citywide minimum wage in 2003, there were no adverse employment consequences. As much as state and local officials need to be mindful of the costs and benefits of any policy, it is important to consider those costs and benefits in their broadest terms.
For state and local officials, there is the obvious calculus of how many workers may get a pay increase and how many jobs might potentially be lost to layoffs, substitution of technology or other capital investment for labor, or business relocation. But the calculus also needs to consider the social costs of workers not earning enough to support themselves and their families. Will state and local officials have to provide increasing subsidies for housing, food, child care, health expenses and other needs at precisely a time when federal funds for those services are drying up? Do low wages mean that fewer people can be homeowners and must be confined to the more blighted sections of town? Do these factors not in the end only contribute to a downward spiral for the nation's cities?
For too long, local economic development has centered around the post-industrial service sector. Attracting white-collar office industries and lower-paying retail and restaurant establishments has been predicated on the need to create favorable business environments. This has meant reducing taxes and other regulations that send the wrong signals to investors. And this also has been one of the reasons that local officials across the country have outsourced municipal services to contractors who pay their workers less than unionized municipal workers. At the same time, these very economic-development assumptions also have created a backlash: the birth of the living-wage movement.
Localities that have adopted living-wage ordinances require contractors with municipal contracts to pay a specified minimum. A citywide minimum wage only seeks to cover more workers. The assumptions that led to outsourcing in the first place also would maintain that a citywide minimum wage would send the wrong signals to investors, thereby costing cities more in foregone economic development.
This may miss the point. Because workers who earn higher wages are able to buy more, they in turn will demand more goods and services, which in turn may lead to the creation of new jobs, resulting in the expansion of local tax bases. But it isn't only those who earn the minimum wage who would get a raise; those in wage ranges above the minimum also would see pay increases. That is why the Congressional Budget Office concluded that, on balance a minimum-wage increase would be of greater benefit: 16 million Americans would receive pay increases. Even if there was job loss -- more likely a result of less job creation for low-wage workers in the future -- the benefits would outweigh the costs.
Local governments clearly are on the front lines in bearing the social costs of low wages, costs that may includes increased poverty and blight, lower levels of participation in local affairs,
and more crime. Those are costs that increasingly fall on local taxpayers. If local officials want to attract industry, they would do better to require employers to pay higher wages in exchange for the traditional tax breaks.
As the data increasingly demonstrates that minimum wages do not have the dire employment consequences predicted in most competitive-model textbooks, it is time for both state and local officials to consider the wider benefits to their communities of better-paid workers. Surely that would fit the definition of a favorable business climate.
VOICES is curated by the Governing Institute, which seeks out practitioners and observers whose perspective and insight add to the public conversation about state and local government. For more information or to submit an article to be considered for publication, please contact editor John Martin.
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