Tag: Guaranteed Living Wage

Most Minimum Wage Earners Can’t Afford Necessities of Life

Crossposted from Antemedius

Jeannette Wicks-Lim completed her Ph.D. in economics at the University of Massachusetts Amherst in 2005, and now specializes in labor economics with an emphasis on the low-wage labor market and has an overlapping interest in the political economy of race, and is now Assistant Research Professor at the Political Economy Research Institute (PERI). She is author of a paper produced at PERI entitled Creating Decent Jobs in the United States (.PDF), in which she concludes that “collective bargaining presents a powerful way to turn the tide on the declining workers’ pay and benefits we have seen for decades“, finds that “a union worker has a 20 percent greater chance of having a decent job than a similar non-union worker“, and shows that “that there is no strong evidence that higher unionization rates lead to higher unemployment rates“.

Her dissertation: Mandated wage floors and the wage structure: Analyzing the ripple effects of minimum and prevailing wage laws (.PDF), is a study of the overall impact of mandated wage floors on wages.

In her dissertation Wicks-Lim provides empirical estimates of the extent to which mandated wage floors cause wage changes beyond those required by law, either through wage effects that ripple across the wage distribution or spillover to workers that are not covered by mandated wage floors.

When asked in an interview published at PERIThough living wage laws may increase pay for some workers, by raising costs for employers might these laws have perverse effects on other workers? From a policy perspective, how do you reconcile the income benefits from living wages with their disemployment effects?“, Wicks-Lim replied with:

I think it is important to first consider whether an employer will actually need to reduce his/her workforce. Whether an employer will actually need to reduce his/her workforce has a lot to do with whether the law increases the costs of doing business significantly or not. The increased costs to employers are typically quite small – on the order of two percent or less of their sales revenues. For employers in the restaurant and hotel industry who are more affected by these laws, increased costs are typically on the order of three to four percent of their sales revenue. So, the fact that most employers face modest cost increases raises the question of whether there are other ways that these costs may be offset-perhaps through increased productivity and lower turnover rates of their now better-paid employees, or perhaps through modest price increases or small reductions in their profit margins. In fact, past research has indicated that minimum wage laws, for example, have not had large disemployment effects, suggesting that employers may react differently to these types of laws from what standard economic theory predicts.

Even for those employers that face more substantial cost increases, it’s important to consider their possible range of responses and then evaluate whether there is still a way to avoid disemployment effects, and if not, see if there is a way to minimize them so that the income benefits more than offset those negative effects.

Here Jeannette talks with Real News Network’s Paul Jay and makes a proposal to combine minimum wage and earned income tax credit policies to guarantee a decent living wage for all.

Real News Network – December 31, 2010

…transcript follows…