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Living Wages: Protection For or Protection From Low-Wage Workers?

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  • David Neumark

Abstract

Living wage laws, which were introduced in the mid-1990s and have expanded rapidly since then, are typically touted as anti-poverty measures. Yet they frequently restrict coverage to employers with city contracts, and in such cases apply to a small fraction of workers. This apparent contradiction leads to the question of whether there are alternative motivations for various economic and political actors to seek passage of living wage laws. This paper considers the hypothesis that unions representing municipal employees work for the implementation of living wage laws to maintain or increase rents. By raising the wages that city contractors would have to pay, living wage laws may reduce the incentives for cities to contract out work that would otherwise be done by municipal employees, hence increasing the bargaining power of municipal unions and leading to higher wages. The empirical analysis leads to evidence that the wages of unionized municipal workers are increased as a result of living wages. This evidence does not imply that living wages offer no assistance to low-wage workers or low-income families. However, it suggests that alternative policies intended to achieve the goal of reducing urban poverty may be more effective, as living wage laws may result more from considerations of self-interest of narrow but politically-powerful groups of workers than from consideration of the optimal way of achieving this goal.

Suggested Citation

  • David Neumark, 2001. "Living Wages: Protection For or Protection From Low-Wage Workers?," NBER Working Papers 8393, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8393
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    References listed on IDEAS

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    1. Leibenstein, Harvey, 1978. "On the Basic Proposition of X-Efficiency Theory," American Economic Review, American Economic Association, vol. 68(2), pages 328-332, May.
    2. Brock, William A & Magee, Stephen P, 1978. "The Economics of Special Interest Politics: The Case of the Tariff," American Economic Review, American Economic Association, vol. 68(2), pages 246-250, May.
    3. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 87-104, August.
    4. Daniel P. Kessler & Lawrence F. Katz, 2001. "Prevailing Wage Laws and Construction Laborc Markets," ILR Review, Cornell University, ILR School, vol. 54(2), pages 259-274, January.
    5. Daniel R. HOLLAS & Stanley R. STANSELL, 1994. "The Economic Efficiency Of Public Vs. Private Gas Distribution Utilities," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 65(2), pages 281-300, April.
    6. Arunava Bhattacharyya & Elliott Parker & Kambiz Raffiee, 1994. "An Examination of the Effect of Ownership on the Relative Efficiency of Public and Private Water Utilities," Land Economics, University of Wisconsin Press, vol. 70(2), pages 197-209.
    7. David Neumark & Scott Adams, 2003. "Do Living Wage Ordinances Reduce Urban Poverty?," Journal of Human Resources, University of Wisconsin Press, vol. 38(3).
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    Cited by:

    1. Giuseppe Bertola & Francine Blau & Lawrence Kahn, 2007. "Labor market institutions and demographic employment patterns," Journal of Population Economics, Springer;European Society for Population Economics, vol. 20(4), pages 833-867, October.
    2. Scott Adams & David Neumark, 2005. "Living Wage Effects: New and Improved Evidence," Economic Development Quarterly, , vol. 19(1), pages 80-102, February.
    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. Scott Adams & David Neumark, 2004. "The Economic Effects of Living Wage Laws: A Provisional Review," NBER Working Papers 10562, National Bureau of Economic Research, Inc.
    5. Addison, John T., 2006. "Politico-Economic Causes of Labor Regulation in the United States: Rent Seeking, Alliances, Raising Rivals' Costs (Even Lowering One's Own?), and Interjurisdictional Competition," IZA Discussion Papers 2381, Institute for the Study of Labor (IZA).
    6. Murgai, Rinku & Ravallion, Martin, 2005. "Is a guaranteed living wage a good anti-poverty policy?," Policy Research Working Paper Series 3640, The World Bank.

    More about this item

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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