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  June 18, 2011

Living Wage Debate in NY

Jeannette Wicks-Lim: Research shows that living wage legislation will not significantly reduce the number of jobs
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Jeannette Wicks-Lim is an economist at PERI, the Political Economy Research Institute. She completed her Ph.D. in economics at the University of Massachusetts Amherst in 2005. Wicks-Lim specializes in labor economics with an emphasis on the low-wage labor market and has an overlapping interest in the political economy of race. Her dissertation, Mandated wage floors and the wage structure: Analyzing the ripple effects of minimum and prevailing wage laws, is a study of the overall impact of mandated wage floors on wages. Specifically, she 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. Jeannette regularly publishes commentary in Dollars & Sense.


Living Wage Debate in NYPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. In cities across America, there have been campaigns over the last few years for what's called a minimum wage, that for companies that either do business with the city or get civic subsidies in some ways--sometimes it's tax breaks or other kinds of subsidies--they have to pay workers what's called a living minimum wage. Now, the federal minimum wage is $7.25 an hour, but in a lot of cities that's not enough to afford shelter, food, basic necessities. So in New York this fight is broken out. The Living Wage Campaign has a piece of legislation in front of the New York City Council which would legislate that companies [who] do business with the city have to pay $10 an hour with benefits or $11.50 an hour without benefits because that's what they say it takes to survive in New York City. Well, Mayor Bloomberg and the city, and some of the City Council, at least, were not so happy with this piece of legislation, so they hired a company called Charles River and Associates, paid them $1 million to find out what would be the effect of such a legislation. And lo and behold, Charles Rivers and Associates, which does a lot of consulting work for corporate America, came back and determined that there would be more jobs lost, and as a result, less overall aggregate benefit to lower-paid workers. Now joining us to discuss the other side of this issue is Jeannette Wicks-Lim. She was part of a study that looked at the study and at the issue of a minimum wage, and she advocates a minimum wage in New York City. Jeannette joins us from the PERI institute, Amherst, Massachusetts, at UMass. Thanks for joining us.


JAY: So what's the main issues of controversy here?

WICKS-LIM: Well, it's--like you said, beginning with the basic concern about this living wage proposal, is whether or not there would be significant employment losses as a result. Of course, if there are employment losses as a result of a living wage proposal, then the workers who are supposed to be benefiting from this kind of proposal would lose out, at least some, because some would lose their jobs altogether. So what I want to also just say right at the start is that the amount of information that we have about the study is not a whole lot. We have a summary of what they've done in this report.

JAY: Now, there's two studies here. So the Charles Rivers and Associates commission study by the New York Council, that we only have an executive summary, and we're waiting for the whole report. There's another study which you were involved with. So, just so people get clear, there's two competing pieces of research going on.

WICKS-LIM: Well, let me clarify even further. What we did is we commented on what was released by the Charles Rivers Associates study, that, you know, they provide a summary of what they find, and they make some pretty serious statements about the type of employment losses that would be experienced in New York City if this living wage proposal passed. What we do is we take a look at what they're saying and evaluate whether or not we think what they're saying is reasonable. And what we contend (and we make a statement about this; this has been released publicly) is that their estimates for the job losses as a result of this living wage proposal are implausible. They're implausibly large.

JAY: Okay. Now, why do you think so? You've been looking at this issue across the country in other cities. You've looked at New York. So, just to give their argument, their basic argument is there is, you could say, a law of supply and demand, and if you interfere with that, you just wind up forcing employers to lay people off. So what's your response to that?

WICKS-LIM: Right. Well, let me just start with what their estimates are. I mean, about half the report focuses on their employment analysis, their labor market analysis. And what they'd concluded in that section of their report is that something on the order of 5 to 6 percent of jobs amongst low-wage workers would result if you had--this is a hypothetical example--100 percent living wage increase, that is, that the minimum wage would double, so it would go up 100 percent. Now, we know, we're familiar with the methodology that they use in this, and what we say is that the number of workers that would actually be covered by this kind of a living wage proposal are really very small. And given how small the coverage would be, how narrow the coverage would be of this kind of living wage proposal, there's just no way you would see employment loss at this magnitude. You know, if you wanted to say that there was any at all, which, again, this is something subject to debate, but the magnitude of the employment loss that they're estimating in their study is just implausibly large. They're saying something on the order of, you know, given the context of what's been proposed, the New York living wage proposal, which is about a 60 percent increase from the federal minimum wage, $7.25 to $11.50, if you look at that proposal and you say, well, what are their estimates saying in terms of employment loss, they're estimating something on the order of 13,000 jobs being lost. Now, from what we know about how these living wage laws work, there's going to be at most about 4,000 workers who might benefit from this kind of a proposal. So somehow they are coming up with the conclusion that many more workers than would actually receive raises would actually experience a job loss.

JAY: When you say 4,000 benefit, you mean only 4,000 workers would actually be covered by the legislation?

WICKS-LIM: It would actually benefit from--would actually experience a wage increase from this living wage proposal.

JAY: So if there were job losses, it has to come out of that 4,000 number is what you're saying.

WICKS-LIM: Well, presumably. I mean, you know, the thing is is that--again, this is what is typically called a business assistance living wage ordinance. So this is an ordinance that would cover businesses that get subsidies from cities. Now, we've studied these kinds of living wage ordinances in other cities in the past years, and we've looked at how many workers have actually received wage raises by these kinds of ordinances. And the number, unfortunately, is very, very small. So you're looking at something on the order of less than 1 percent of low-wage workers. And when I say low-wage workers, we're talking about the bottom 10 percent of workers who earn the lowest wages.

JAY: And why is it so small? One would think there'd be more people involved in this.

WICKS-LIM: Well, you know, the thing is is that business assistance living wage laws are hard to enforce, and they--it seems that which businesses should be covered is not clear. I mean, within the city government there seems to be a lot of--it's just unclear to the city staff, you know, who should be monitoring these things, which businesses should actually be covered. So, you know, I'm not an expert on these particulars, but there was a study done by Stephanie /lus/, where she looks in quite great detail--she interviews lots of city officials that have these kinds of living wage ordinances, to find out, you know, what's being enforced and what's not, and what's--she concludes is that these business assistance living wage ordinances are just--they are hard to enforce because there isn't typically a centralized office that looks at these things. Staff may not be trained to know how to monitor and identify which businesses are being affected. And apparently these kinds of assistance, these types of assistance programs is organized in a very decentralized way in the city government. So there are different agencies involved, and they may not, you know, confer with each other about what subsidies are--.

JAY: But, presumably, people that want this legislation want it enforced and want it to be effective. So I suppose the city and some of these employers--I think a lot of them are in the real estate business or the construction business--they don't want the door open to this, 'cause they must--I mean, and if the thing's not--if people assume it's all not going to be enforced, there's not much point even passing it.

WICKS-LIM: Right. I mean, you know, obviously, the people who are advocating for this ordinance would like to see the coverage and enforcement to be stronger than it has been in the past, but, you know, our contention about the study that's been in the press that's been released by the Charles Rivers and Associates is that they make estimates based on what's been, you know, what has happened in the past with these business assistance living wage ordinances. They make estimates of large employment losses relative to the number of workers that were actually covered. I mean, they just are--they're implausible. The number of workers that would lose jobs is way too large in terms of the number of workers who actually benefit from these kinds of ordinances. So, you know, we--this is something that we looked at very carefully to try to figure out, you know, could their estimates be correct. And one way you can do that and one way that this is done in economics is you can do something called a replication exercise, where you actually take this study that you're, you know, scrutinizing, you replicate what they've done so you can see exactly how the results came out, and then you change the estimation or, you know, something about the assumptions that you think are more reasonable, and then you see if their results hold up. And we did this exact exercise, using the methodology that the study put out by Charles Rivers and Associates was based on. We replicated this methodology. We made a more reasonable assumption about how many workers would be covered by the living wage ordinances of this type. And what we found was that there was no negative employment effect from these kinds of ordinances. And just to give you a sense of how--what kind of assumptions we had to change in this kind of methodology, you know, how inaccurate we feel that the methodology is, you know, one of the assumptions that's made in this methodology is that most low-wage workers would be covered by these types of living wage ordinances. You know, for example, in Los Angeles, that had a business assistance living wage ordinance in effect during the study that we looked at, they assumed that 90 percent of low-wage workers would be covered by this ordinance, and in fact less than 1 percent of low-wage workers [incompr.] covered. So with the vast majority of the workers that they're trying to look at to see what the impact of a living wage ordinance would be, the vast majority of them are not even covered by this ordinance. And so they're really detecting sort of what's going on in the low-wage Los Angeles labor market, as opposed to what's really being influenced by living wage ordinance itself.

JAY: Okay. Well, we invited someone from Charles River and Associates to join us, and they have said they will, but not yet, because only the executive summary of their report has come out. And when the full report comes out, they have said they will join a debate about the conclusions of all of this. So we will let you know when that's coming, and we hope you'll join us. Jeannette, any last word on this?

WICKS-LIM: Just I would like to just say that I'm surprised that this executive summary came out when it did, because it did seem that the report was not complete, at least, that the study wasn't complete. And given that the methodology that was used in labor market analysis is something that we've critiqued quite thoroughly, I was surprised to see that it was being used again for such an important issue.

JAY: Okay. Well, we look forward to the debate. Thanks, Jeannette. And thank you for joining us on The Real News Network.

End of Transcript

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