During the past two years,

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1 The New Municipal Minimum Wage Laws PAUL K. SONN During the past two years, a new trend in wage legislation has begun to emerge in cities across the United States. Responding to Washington s refusal to keep the federal minimum wage at a meaningful level, cities have started to enact their own minimum wage laws. These municipal laws require local businesses to pay a minimum wage higher than the applicable state and federal minimum wages. Distinct from local living wage laws which also require higher minimum wages but generally extend only to businesses that receive contracts or subsidies from cities these broader local wage laws raise the minimum wage for larger numbers of local workers and businesses. This article analyzes this new trend, providing background on the city minimum wage laws that have been enacted, explaining how they reflect a growing trend by state and local lawmakers across the country to promote raising the minimum wage, and summarizing analyses of the economic impact of such measures. City Minimum Wage Laws Enacted or Proposed Although American cities have enacted minimum wage laws in the past, 1 local lawmakers have shown greater interest in such measures in recent years. Since 1994, five communities have enacted city minimum wage laws or have proposals currently pending (Table 1). Background: The Decline of the Federal Minimum Wage The minimum wage is one of our nation s most important public policies for ensuring the wellbeing of low-income Americans. But Washington has let its value drop dramatically over the past thirtyfive years. The minimum wage would be Table 1. Year Wage City Enacted Level Employers Covered Status Washington, D.C $6.15 All businesses On the books for 10 years New Orleans, LA 2002 $6.15 All businesses Blocked by the Louisiana legislature and courts Santa Fe, NM 2003 $8.50 Large businesses Under legal challenge San Francisco, CA 2003 $8.50 All businesses, but delayed phase-in for non-profits & small businesses Took effect February 2004 Madison, WI 2004 $7.75 All businesses Pending before city council 43

2 worth $8.51 today if Congress had consistently updated it to keep pace with inflation since 1968; instead it stands at $ percent below its real value in 1968 (Table 2). The level of the minimum wage affects pay rates throughout the bottom portion of the labor market because employers use it as a guide in setting pay scales. The drop in the minimum wage has therefore contributed to the rapid growth of lowwage jobs in our economy to the point that today almost 30 million Americans about a quarter of the nation s workforce work in jobs paying less than the federal poverty level for a small family. 2 The Grassroots Response As Congress and the White House have refused to raise the minimum wage, advocates for low-wage workers and state and local policymakers have stepped forward. Building on a history of efforts to raise minimum wages at the state and local levels, they have enacted a variety of higher wage laws aimed at addressing the dropping value of the federal minimum wage. As outlined in Table 3, these new initiatives have taken several forms. Starting in 1994, cities began enacting local living wage laws local ordinances setting higher minimum wages for businesses receiving city contracts or Table 2. Cities are beginning to enact their own minimum wage laws. subsidies. Over the past decade, more than 110 cities and counties across the United States have adopted such living wage ordinances, which require affected employers to pay their workers a wage that can sustain a family. 3 Because of their narrow coverage, the number of workers affected by a living wage law in an average city typically ranges from several hundred to a few thousand. During the same period, advocates and lawmakers have increasingly acted at the state level to raise the minimum wage as well. Either through state legislation or voter ballot initiatives, twelve states have responded to the falling real value of the federal minimum wage by raising state wage minimums to keep pace with inflation. 4 Now, in an important new trend, cities across the United States are beginning to enact their own local minimum wage laws. Building on their successful experiences in the 1990s with living wage laws of narrower scope, these new minimum wage laws require all employers in a community to pay a higher minimum wage. Table 3 compares federal, state, and local minimum wage laws, and local living wage laws, outlining their respective coverage and wage rates, the impact of increasing them, and the means by which they are enacted. The Minimum Wage in 2003 $5.15/hr. What the Minimum Wage Would Be If Congress Had Kept It Updated for Inflation Since 1968 $8.51/hr. a Annual Income of a Worker Earning the $5.15 Minimum Wage $10,712 Basic Needs Budget for 1 Parent & 1 Child in a Typical City $33,083 b a. In 1968, the federal minimum wage was $1.60 per hour. See U.S. Department of Labor, History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, , available at < minwage/chart.htm>. Adjusted for inflation using the U.S. Department of Labor s Consumer Price Index Calculator, available at < $1.60 in 1968 is the equivalent of $8.51 in 2003 dollars. b. This example uses data from Chicago as a typical U.S. city. In 1999, a family of one parent and one child in Chicago needed to earn $29,762 in order to meet basic needs of housing, food, healthcare, childcare, and transportation. See Boushey, H., C. Brocht, B. Gundersen, and J. Bernstein Hardships in America: The Real Story of Working Families. Washington, D. C.: Economic Policy Institute, Table A4.1. Adjusted for inflation using the Consumer Price Index Calculator, that figure is the equivalent of $33,083 in 2003 dollars. The Impact of City Minimum Wages As more municipalities enact or consider city minimum wage laws, cities and researchers have begun to analyze their impact on local workers, families, and businesses. Impact on Working Families Analyses have found the new city minimum wage laws can raise pay for thousands of local low-income families, and have a substantially broader impact than city living wage laws: in San Francisco, an estimated 54,000 low-income workers received raises under the new city minimum wage 22,000 who were previously earning less than $8.50 and another 32,000 who were earning slightly more but were expected to receive raises when employers adjusted their pay scales; 5 in Santa Fe, the minimum-wage workers who will receive a raise are overwhelmingly adults (89 percent), predominantly Hispanic (57 percent), and mostly living in families where the low-wage worker contributes a significant share (60 percent on average) of the family s income; 6 and sixty percent of Santa Fe households with low-wage workers currently cannot meet basic family needs and will benefit substantially from the minimum wage increase. 7 Impact on Local Businesses Since city minimum wage increases are too new to have been studied yet in practice, local governments adopting city minimum wages have been guided by fifteen years of economic research on the results of state and federal minimum wage increases. This research has found that employers have not cut jobs after minimum wage increases even for youth of color and other vulnerable workers. 8 As a consequence, leading American economists now agree that the risk of job losses from increasing the minimum wage is very small SUMMER 2004

3 Table 3. Federal Minimum Wage State Minimum Wage City Minimum Wage City Living Wage Wage Rate $5.15/hr 12 states ranging from $7.25/hr $8.50/hr in San Francisco Typically $9.00 $11.00/hr in Alaska to $6.15 in Delaware; and Santa Fe; $6.15/hr in plus health benefits average is approx. $6.75/hr a Washington, D.C.; $7.75/hr (proposed) in Madison Coverage All employers (with some All employers (with some All employers (with some Employers receiving city exceptions) exceptions) exceptions) contracts or business subsidies Impact of Raising Almost 10 million workers Typically 5 10% of the state Typically 5 10% of the local 500 2,000 workers in the when last increased to workforce e.g., 1.5 million workforce e.g., 54,000 average medium-sized city $5.15 in 1997 b workers when California workers when San Francisco increased to $6.75 in 2002 c ; increased to $8.50 in 2004 e 177,000 workers when Oregon increased to $6.50/hr in 1999 d Legislative Vehicle Statute Statute or ballot initiative Ordinance or ballot initiative Ordinance or ballot initiative a. U.S. Department of Labor, Minimum Wage Laws in the States. b. Bernstein, J., and J.Schmitt The Impact of the Minimum Wage Increase. Washington, D.C.: Economic Policy Institute, available at < c. California Budget Project Minimum Wage Increases Bring Real Wage Gains to California Workers. Sacramento, CA, October, available at < d. Thompson, J., and C. Sheketoff Getting the Raise They Deserved: The Success of Oregon s Minimum Wage and the Need for Reform. Portland, OR: Oregon Center for Public Policy, March, available at < e. Reich, M., and A. Laitinen Raising Low-Pay in a High Income Economy: The Economics of a San Francisco Minimum Wage. University of California Institute for Labor and Employment, May, p.31, available at < Employers have not cut jobs after minimum wage increases. Projections in individual cities of the impact of higher city minimum wages on local businesses have reached similar conclusions. These analyses indicate that the costs will be modest for most firms, and that city minimum wage laws are unlikely to lead to economic dislocation. A survey of local businesses commissioned by San Francisco found that 82 percent of firms would see less than a 1 percent increase in their operating costs under an $8.50 minimum wage. Only 5 percent of all businesses would see cost increases of 5 percent or more. A similar survey in New Orleans found even smaller impacts from a proposed $6.15 minimum wage in that city. 10 The studies in San Francisco and New Orleans also concluded that few firms affected would be likely to relocate outside of the city to avoid the higher minimum wage because the businesses most affected are restaurants, hotels, and retail employers businesses whose clientele are generally tied to their location in the city. 11 Research indicates that most firms required to raise pay after a minimum wage increase will cover the higher wage costs through a combination of modest price increases, increased efficiency, and trimmed profit margins. For example, most firms affected by San Francisco and Santa Fe s $8.50 minimum wages could fully cover the higher wage costs by raising prices by less than 1 or 2 percent, although a small portion would need to raise prices by closer to 5 percent. 12 A recent study of the effects of a wage ordinance at the San Francisco International Airport found that turnover decreased by 60 percent among firms that were required to raise wages by 10 percent or more, and that such firms also reported improvements in work performance, employee morale, and consumer satisfaction. 13 Research also indicates that minimum wage increases can function as an economic stimulus for low-income neighborhoods, generating increased revenue for local businesses as lowwage workers spend their higher pay to buy necessities in the communities where they live. 14 More extensive post-enactment studies are currently being planned in San Francisco and Santa Fe two of the first localities to adopt city minimum wages to examine the effects these policies have over the coming years. Is It Legal? The power of cities to enact minimum wage ordinances varies from state to state. In a few states such as California and Maryland, the legislature or the courts have already held that cities have the power to enact minimum wages. A 45

4 few others Louisiana, Florida, Texas, Arizona, Colorado, Utah, South Carolina, and Oregon have passed laws that forbid local minimum wage ordinances. Supporters of increased living standards for low-wage workers have proposed living wage laws, state minimum wage hikes, and, most recently, city minimum wages. Photo courtesy of ACORN. In most states, the issue has not yet been tested, but it appears that cities may regulate minimum wages under their local home rule authority to enact legislation that safeguards the health, safety, and welfare of their communities. In the coming years, it is likely that more localities will explore city minimum wage laws as a means of raising pay for low-income workers in their communities and responding to the declining federal minimum wage. The political, economic, and legal dimensions of these new measures will undoubtedly necessitate further attention from both scholars and practitioners as this trend develops. Notes 1. Baltimore has had a city minimum wage since 1964, although it has little significance today as it is set at just $5.15 the same level as the federal minimum wage. New York City passed a city minimum wage ordinance in 1962, but its enactment was blocked by the courts. 2. Mishel, L., J. Bernstein, and H. Boushey The State of Working America Ithaca, NY: ILR Press, p. 134, Table 2.9; and Appelbaum, E., A. Bernhardt, and R. Murnane Low-Wage America: An Overview. In E. Appelbaum, A. Bernhardt, and R. Murnane, eds., Low-Wage America: How Employers Are Reshaping Opportunity in the Workplace. New York: Russell Sage Foundation, p ACORN Living Wage Resource Center, Living Wage Wins, available at < 4. U.S. Department of Labor, Employment Standards Administration Wage and Hour Division. Minimum Wage Laws in the States, available at < / america.htm>. 5. Reich, M., and A. Laitinen Raising Low-Pay in a High Income Economy: The Economics of a San Francisco Minimum Wage. University of California Institute for Labor and Employment, May, p Pollin, R Testimony before the Santa Fe City Council on proposed living wage ordinance, Feb. 26. University of Massachusetts Political Economy Research Institute. 7. Pollin, Testimony, pp This research began with the pioneering work of David Card and Alan 46 SUMMER 2004

5 Krueger who examined the effects of New Jersey s 1990 minimum wage increase. See Card, D., and A. Krueger Myth and Measurement: The New Economics of the Minimum Wage. Princeton: Princeton University Press; and Card, D. and A. Krueger Minimum Wages and Employment: A Case Study of the Fast-food Industry in New Jersey and Pennsylvania: Reply. American Economic Review, Vol. 90, no. 5 (December), pp Subsequent research by Card and Krueger and other researchers examining the impact of the 1991 and 1992 federal minimum wage increases and of other recent state or federal minimum wage increases have found similar results. See Card, D Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage. Industrial & Labor Relations Review, Vol. 46, no. 1, pp ; Bernstein, J Increasing the Minimum Wage: Don t Let the Slowdown Slow It Down. Washington, D.C.: Economic Policy Institute Issue Brief, June 11; Bernstein, J., and J. Schmitt Making Work Pay: The Impact of the Minimum Wage Increase. Washington, D.C.: Economic Policy Institute ; Spriggs, W., and J. Schmitt The Minimum Wage. In T. Schafer and J. Faux, eds., Reclaiming Prosperity: A Blueprint for Progressive Reform. Armonk, NY: M.E. Sharpe, Inc. ; and Pollin, R., S. Luce, and M. Brenner Economic Analysis of the New Orleans Minimum Wage Proposal. University of Massachusetts Political Economy Research Institute, Research Report no. 1, pp As the President s Council of Economic Advisors found in 1999, [T]he weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment. In fact, a recent study of the 1996 and 1997 [federal minimum wage] increases, using several different methods, found that the employment effects were statistically insignificant. Moreover, the unemployment rates of black teenagers and high school dropouts two groups of workers most likely to be affected by the wage hike are lower today than they were just prior to the increases Economic Report of the President. Washington, D.C.: U.S. Government Printing Office, p Nobel laureate Robert Solow of the Massachusetts Institute of Technology explains, The main thing about the research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small. Quoted in L. Uchitelle A Pay Raise s Impact. New York Times, January 12, D1. Richard Freeman of Harvard University, perhaps the country s foremost labor economist, has said the entire literature on the minimum wage [now agrees] that employment losses are modest. Quoted in J.W. Mason Living Wage Junkonomics. City Limits, May, available at < The eminent Harvard economist John Kenneth Galbraith has said more pointedly, That [an adequate minimum wage] will diminish employment opportunity, the argument most commonly made in opposition, may be dismissed out of hand, for that is, invariably, the special plea of those who do not wish to pay the wage, and it is without empirical support. In J. K. Galbraith The Good Society. Boston: Houghton Mifflin, p Reich and Laitinen, Raising Low-Pay, pp ; and Pollin, R., M. Brenner, and S. Luce Intended vs. Unintended Consequences: Evaluating the New Orleans Living Wage Proposal. Journal of Economic Issues, Vol. 36, no. 4 (December), pp , Tables 2 and Reich and Laitinen, Raising Low-Pay, pp ; Pollin, R., M. Brenner, and S. Luce, Intended vs. Unintended Consequences, pp Reich and Laitinen, Raising Low-Pay, pp ; Pollin, R., S. Luce, and M. Brenner, Economic Analysis, p See Reich, M., P. Hall, and K. Jacobs Living Wages and Economic Performance: The San Francisco Airport Model. Institute of Industrial Relations, University of California, Berkeley, March, pp , available at < Reich and Laitinen, Raising Low-Pay, p. 42. Neighborhood and small town food and retail stores and restaurants, in particular, would be likely to see sales increase as a result of a minimumwage hike..., in Markusen, A., J. Ebert, and M. Cameron The Case for a Substantial Minimum Wage Hike for Minnesota. University of Minnesota Humphrey Institute of Public Affairs, September, p. 6, available at < prie>. Paul K. Sonn Paul K. Sonn is associate counsel at the Brennan Center for Justice at NYU School of Law. He coordinates the Center s work in support of living wage and minimum wage campaigns and other progressive labor market reform initiatives. 47