Intended vs. Unintended Consequences: Evaluating the New Orleans Living Wage Proposal

In February 2002, New Orleans endorsed with a 63 percent majority a ballot initiative to establish a citywide minimum wage one dollar above the federal minimum. We surveyed New Orleans businesses in 1999 to estimate this proposal’s costs. We present the main results from this survey. We then evaluate five means through which firms might adjust to cost increases—raising prices, improving productivity, redistribution of firms’ income, layoffs/labor displacements, and relocations. Because we find that the cost increases will be small for most firms—i.e. one percent or less of these firms’ operating budgets—we conclude that changes in prices, productivity and distribution are the likely primary means through which firms will absorb these costs. We also consider the likely benefits of the measure to some New Orleans businesses through an expenditure multiplier.