Keeping the Poor Poor: The Dark Side of the Living Wage

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For nearly a decade, activists on the left havebeen conducting a highly effective nationwidecampaign to mandate local minimum wages atlevels that presumably eliminate poverty for full-timeworkers and their families. This "livingwage," as it is known, is now the law in dozens ofjurisdictions, and dozens more are actively consideringsimilar measures. Typically, a living wage isset anywhere from 50 percent to 100 percent abovethe current federal minimum wage of $5.15 anhour and often higher if employers do not providehealth benefits. Thus far, there has been only modestresistance, even from local governments forwhich the cost of doing business inevitably rises.

Most living wage ordinances apply to private-sectorgovernment contractors and, to a lesserextent, recipients of business aid or local governmentemployees, or both. Supporters insist thatthe benefits are enormous and the costs minimal.But that view is an illusion, a product of the insularworld of local government contracting. If theliving wage were applied to all employees acrossthe United States--the goal of advocates of a livingwage--it would greatly magnify the well-documentedpitfalls of the minimum wage.

Decades of research have shown that the minimumwage harms the least-skilled workers frompoor families while heavily benefiting youngworkers from middle-income households. Severalstudies critical of the living wage come to similarconclusions. The main beneficiaries of the livingwage are public-sector unionized employeesbecause of the reduced incentives for local governmentsto contract out work. Instead of exploitinggrievances of the marginally employed against"greedy" employers, advocates for the poorshould focus their energies on building the skillsof the poor.

Carl Horowitz

Carl F. Horowitz is a Washington, D.C.,-area consultant on labor, welfare reform, immigration, housing, and other domestic policy issues. He was previously a housing and urban affairs policy analyst at the Heritage Foundation and a Washington correspondent for Investor's Business Daily.