Analysis

Topic: Living Wage Ordinances
Sponsor: Representative Richner
Committee: House Employment Relations, Training, and Safety
Date Introduced: February 22, 2001
Date of Analysis: May 25, 2001

Position: The Department of Consumer and Industry Services has taken no position on this bill.

Background: Living wage ordinances are laws that have been passed by some cities and counties in the United States that require firms that do business with the local unit of government to pay workers wages that exceed the federal and state mandated minimum wage rates. Although the "living wage" is defined by proponents as an amount sufficient to provide enough money for a family of four to have food, shelter, housing, health care, and small amount for discretionary purposes. In practice, the "living wage" defined in local ordinances around the country vary from 50% to 150% of the federal minimum wage.

There are six communities in Michigan that have living wage ordinances. They are Ann Arbor, Detroit, Ferndale, Warren, Ypsilanti, and Ypsilanti Township. The mandated rates in the four municipalities for which the department has information are as follows: Detroit, $8.53; Warren, $8.20; Ypsilanti, $8.50; and Ypsilanti Township, $8.50. These rates apply if the employer provides health benefits. A higher rate applies if no health benefits are provided.

Bill Content: The bill amends the Minimum Wage Law of 1964 to prohibit a local unit of government from enacting, maintaining, or enforcing a minimum wage rate that is greater than the rate prescribed in the act (Currently $5.15 per hour). The bill does not mention living wage ordinances. Instead, it prohibits local units of government from having a higher minimum wage than the state by charter, ordinance, purchase agreement, contract, regulation, rule, or resolution, either directly or indirectly.

The bill does not apply to collective bargaining agreement between a local unit of government and its employees. "Contract" is defined in the bill to exclude a collective bargaining agreement.

The bill also includes a clarifying provision stating that its prohibition on a local government imposing a minimum wage greater than the state's rate shall not limit, restrict, or expand a prevailing wage required under Public Act 166 of 1965.

Arguments For: Living wage ordinances benefit low-wage adults and their families by assuring them an income that brings them up to the federal poverty standard. The current minimum wage does not do this.

Living wage ordinances will not result in the laying off of low-wage workers, nor will they cause businesses to relocate. A study in Baltimore, which adopted a living wage ordinance in 1994, found that city contract costs actually declined after the ordinance and that predicted negative effects of the living wage ordinance, including higher costs, fewer jobs, and fewer bids for city contracts, did not materialize.

Living wage ordinances have broad public support. In addition to the six Michigan communities, there are currently more than fifty such ordinances in the United States. A recent study by the Pew Partnership for Civic Change asked respondents to rank the top problems in their community. The number one problem cited in the study was the lack of jobs that pay a living wage. A total of 42% of the respondents cited this as a problem in their community.

Arguments Against: The living wage movement is based on a number of fallacies. Low family income is primarily caused by the lack of full-time, steady work opportunities rather than low hourly wages. Most minimum wage earners are not members of low-income families. A significant number are teenagers or young adults living in households where there are other wage earners. Although a single minimum wage job does indeed generate an income below the poverty line, this simplistic analysis does not reflect economic reality. In many households there are multiple wage earners. Also, the analysis does not reflect the economic impact of federal transfer programs, like the Earned Income Tax Credit, food stamps, etc. Despite the protestations of living wage proponents, several studies have shown significant job losses associated with increases in the federal minimum wage. The Baltimore study that found no job losses resulting from that city's minimum wage has been largely discredited. Finally, the argument by living wage proponents that the relocation consequences are minimal because service companies and contractors affected by the living wage ordinances are tied to their locations is not true. These businesses can move to a nearby lower cost community and still serve the local market and many may be forced to do so to offset the required increases in labor costs.

Living wage ordinance send the wrong message to the business community regarding the business climate in the area. A study conducted by the Chicago City Council in July 1996 found that a proposed living wage ordinance would cost the city nearly $20 million a year, increase labor costs among affected firms by $37.5 million, and cause job losses of at least 1,300. The city did not proceed with their ordinance. Unlike many large cities, including Detroit, which does have a living wage ordinance, Chicago's population is increasing. Recently, Boeing Corporation decided to relocate their headquarters from Seattle to Chicago. If Chicago had adopted a living wage ordinance in 1996, this move probably wouldn't have happened.

There are much better ways of addressing the needs of low-income workers than a living wage ordinance. In a survey of labor economists conducted by the University of New Hampshire Survey Center for the Employment Policies Institute in 2000, 69% of the 336 economists believed that a living wage ordinance was not efficient in addressing the income needs of poor families.

Supporters/Opponents: The Michigan State Chamber of Commerce, the Detroit Regional Chamber, the Michigan Health and Hospital Association, and NFIB Michigan support the bill. The Michigan AFL-CIO opposes the bill. The Maurice and Jane Sugar Law Center for Economic and Social Justice also opposed the bill in committee. The Associated General Contractors and the International Brotherhood of Electrical Workers are concerned about the impact of the bill on local prevailing wage ordinances. There is a proposed committee amendment dealing with this issue.

Fiscal Impact: There will be no direct fiscal impact on the State of Michigan or the Department of Consumer and Industry Services.

Administrative Rules Impact: No new administrative rules would be required.