News Release

October 21, 2003

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Study: 'Living Wage' Laws Take Jobs From the Poor
Laws designed to help the poor actually aid public employee unions and young workers

WASHINGTON -- City and local governments from New York City to Washtenaw County, Mich., have instituted so-called living wages that are sometimes more than twice as much as the federally mandated minimum wage of $5.15 an hour. But according to a new Cato Institute study, the living wage actually harms those it's purportedly intended to help.

Washington labor consultant Carl F. Horowitz argues that, in the long run, the jobs the poor lose because of living wage requirements offset the increased wages. He draws on economic data from living and minimum wage studies conducted during the past four decades in "Keeping the Poor Poor: The Dark Side of the Living Wage."

According to Horowitz, living wage laws as of 2002 directly affected only 1 percent or so of employees in the communities that have enacted such laws. Those who benefit the most are young workers and public-sector unionized employees. Living wage laws not only reduce the incentives for local governments to contract work out, but they also increase the bargaining power of the employee unions.

Moreover, as employers are forced to pay low-skilled workers a higher wage, they are less likely to hire such workers. Citing a study by Michigan State University's David Neumark, Horowitz writes that a living wage set at 50 percent above the minimum wage increases the average wage for workers in the bottom tenth on the pay scale by 3.5 percent. However, the same wage increase reduces the employment rate by 7 percent among those workers.

"The living wage campaign is a triumph of confrontation politics and class resentment," Horowitz writes. "Decades of research have shown that the minimum wage harms the least-skilled workers from poor families while heavily benefiting young workers from middle-income households."

He calls on local governments considering the living wage to resist the movement, because it "is likely to harm America's poor in the name of protecting them."