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The Impact of Living Wage Laws on Urban Economic Development Patterns and the Local Business Climate: Evidence from California Cities

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  • Lester, William T.

Abstract

Traditional local economic development policies entice private businesses to create highpaying jobs in a given jurisdiction through direct subsidies or by projecting a positive “business climate†within regional and global arenas. Since 1994 however, “living wage†ordinances have emerged as an alternative response to labor market polarization in urban areas. However, these laws raise labor costs for employers and thus have the potential to reduce economic growth. I assess the impact of living wage laws on employment and establishment levels in the cities that pass them. I provide separate estimates for government contractors and other firms that may be indirectly signaled by a change in the local political environment. I use the National Establishment Time-series database to construct a panel dataset that tracks employment and establishment levels for all California jurisdictions. I produce difference-in-difference estimates that indicate that living wage laws have no significant impact on employment or establishment growth. Additionally, I find no evidence that the passage of living wage laws sends a negative “signal†to businesses about a potentially harmful local business climate.

Suggested Citation

  • Lester, William T., 2009. "The Impact of Living Wage Laws on Urban Economic Development Patterns and the Local Business Climate: Evidence from California Cities," Institute for Research on Labor and Employment, Working Paper Series qt9313w788, Institute of Industrial Relations, UC Berkeley.
  • Handle: RePEc:cdl:indrel:qt9313w788
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    1. Adams, Scott & Neumark, David, 2005. "The effects of living wage laws: Evidence from failed and derailed living wage campaigns," Journal of Urban Economics, Elsevier, vol. 58(2), pages 177-202, September.
    2. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    3. Timothy J. Bartik, 2002. "Thinking about Local Living Wage Requirements," Upjohn Working Papers and Journal Articles 02-76, W.E. Upjohn Institute for Employment Research.
    4. Charles Brown & Curtis Gilroy & Andrew Kohen, 1982. "The Effect of the Minimum Wage on Employment and Unemployment: A Survey," NBER Working Papers 0846, National Bureau of Economic Research, Inc.
    5. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    6. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
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