Living wage laws – laws that require businesses receiving government subsidies to pay all workers enough to live above the poverty line – are gaining momentum across the country. Their goal is to ensure that taxpayer dollars don’t support business practices that keep low-wage workers in poverty. However, critics of living wage laws argue that they are anti-business and anti-worker, and use a number of myths to back their arguments up.
UNC economics professor Bill Lester recently investigated the three most common myths about living wage laws by measuring their actual impact over time. Here’s what he found.
1. Myth: Living wage laws could kill business deals
Opponents argue that a business could decide the living wages are too high and decide to locate elsewhere, meaning the city loses out on all the jobs and the economic growth that would have come with them.
Lester found that living wage laws had “no meaningful impact on employment in industries that are often targets of economic development,”[i] like non-durable manufacturing. Local governments don’t spend less time on business attraction efforts after they pass living wage laws, and don’t make fewer business deals because of those laws. Additionally, living wage laws put more money in low-wage workers’ pockets, which in turn puts more money in local markets – low-income Americans are more likely to spend money locally.[ii]
2. Myth: Living wage laws hurt low-income workers
The argument here is that employers will hire fewer workers, or shift towards high-wage workers, to adjust to living wage laws. Additionally, city officials may shift their business incentive strategies away from industries with a high share of low-wage jobs, and towards industries with a higher share of high-wage jobs like biotechnology, research & development.
None of the employment variables that Lester analyzed showed a statistically significant long-term impact. Those results include total private sector employment and low-wage sector employment. “It appears that, even in the current economic environment, a living wage ordinance is an effective tool for raising wages in a city without sacrificing the number of jobs.”[iii]
3. Myth: Living wage laws are an anti-business signal that will scare other businesses away
According to living wage critics, larger and more mobile businesses will read a city’s strong living wage law as an indication that the city is becoming more pro-labor and anti-business, and will relocate away from that city as a result.
Lester’s research found no employment effect for headquarters or branch plants. This means that highly mobile businesses aren’t fleeing locations with living wages, or responding to a perceived change in the local political environment. Results also indicate there was no significant impact on the number of businesses in cities with living wage laws.
[i] Lester, T. William. 2012. “Labor Standards and Local Economic Development—Do Living Wage Provisions Harm Economic Growth?” Journal of Planning Education and Research. Fall 32(3): 331-348. Available at http://planning.unc.edu/people/faculty/williamlester/LaborStandardsandEconomicGrowthWorkingPaperVersion.pdf
[ii] See note i.