Living Wage Policy: The Basics


The “living wage” movement has captured the hearts of many policy makers. Unfortunately, their minds have lagged dangerously behind.

Thrust into the public forum by the AFL-CIO, the New Party and the Association of Community Organizations for Reform Now (ACORN), the living wage move-ment
is now being debated and has been adopted in dozens of cities and counties across the nation. More often than not, lawmakers are considering “utopian” mini-mum
wage rates of $10 to $15 an hour with little regard for the consequences of their decision.

One reason for the movement’s apparent success is the lack of unbiased research on this new phenomenon. While several studies claim living wage laws are the
policy equivalent of cold fusion (unlimited benefits without any cost), each of those was conducted by self-professed living wage activists (see page 11).
Today, more than ever, there is a critical need to understand that a mandated wage hike is a double-edged sword. The combination of higher minimum wages
and welfare reform freezes low-skilled job applicants out of the private-sector job market, denying them work experience and training while their support
benefits have eroded.

Despite their best effort to cast the living wage in a “needs-based” light, there is one market principle that can’t be legislated otherwise: skills equal wages. Indi-viduals
who use entry-level jobs to gain basic skills move on to higher-paying work. By contrast, the unskilled employees who are supposed to “benefit” from a
government-mandated pay raise often face fewer employment opportunities as a result of it.

Government has the power to mandate minimum wages, but despite the best inten-tions, it cannot force employers to hire the unskilled and inexperienced at wages
that exceed their skill level.

The Employment Policies Institute prepared this document to help lawmakers, the media and the public better understand the living wage movement by weighing the
emotional rhetoric of living wage proponents against economic realities.