Living Wage Laws

A living wage is a locally mandated wage that is higher than state or federal minimum wage levels. Living wages are often set at the level needed for a family of four to meet the federal poverty level ($24,300 for a family of four in 2015 (US DHHS-Poverty)). Living wage ordinances typically apply only to companies under contract with or receiving assistance from cities with such an ordinance. Some ordinances mandate or encourage firms to provide health coverage and other benefits to workers.

Expected Beneficial Outcomes: Increased earnings; Reduced poverty.

Evidence of Effectiveness: There is some evidence that living wage laws increase wages for covered workers and modestly reduce poverty rates. Additional evidence is needed to confirm effects. Living wage laws appear to help workers just below and just above the poverty line the most. Moderate living wage requirements applied to local government, and to contractor and grantee employees funded by local government, are the most likely to reduce poverty rates. In some cases, living wage ordinances can lead firms to lay off workers or reduce workers’ hours. Ordinances with relatively lower costs to firms reduce the likelihood of other unintended consequences such as firm relocation and employee displacement. Increased wages may encourage higher-skilled individuals to join the applicant pool; to minimize the likelihood of displacing the lowest-skilled workers, some researchers suggest setting wages close to market rates. A nationwide study of living wage ordinances finds no city-level effects, positive or negative, on average wages, poverty rate, or unemployment; the lack of city-wide effects may be due to the limited number of workers covered by ordinances, or ordinances setting wage thresholds too low. Living wage laws and initiatives can be implemented without significant negative effects on employment or business growth. A study of Los Angeles’ living wage, for example, found that participating businesses reduce employee turnover, absenteeism, overtime hours, and job training needs compared to other businesses. Studies of Boston’s living wage found that covered businesses increase full-time staffing and reduce internal wage inequality. A survey of businesses participating in a Vancouver, Canada, living wage certification program suggests such programs may increase worker recruitment and retention, while decreasing training costs. Research suggests that living wage ordinances are associated with reductions in property-related crime. Living wages may improve mental health among workers: in a study of London’s living wage, service sector employees who work for a living wage employer appear to have greater psychological well-being than those who do not.
Equity Analysis: Potential to decrease disparities: Supported by some evidence. There is some evidence that living wage laws have the potential to decrease disparities in socioeconomic status by modestly reducing poverty for covered workers earning lower wages, compared with workers earning higher wages. Living wage laws are designed to increase families’ income and reduce poverty; wage rates are indexed to the federal poverty threshold. In practice, living wage ordinances are usually implemented at the city or county level, covering a limited number of urban workers employed by or through the municipality. Families with a single earner and multiple children may see less poverty reduction, especially with part-time employment. A 2002 study on Los Angeles’ living wage ordinance for city employees and contractors suggests that female and Black workers were more likely to be affected by the ordinance, since they make up a greater percentage of the public sector workforce. Most workers affected by the ordinance were full-time employees, with a high school education or less; 58 percent were age 35 or older; 50 percent were Latino; 29 percent were Black; and 57 percent were women. About 50 percent of affected workers were immigrants to the U.S. Most workers who benefited had been in the workforce an average of 20 years. As of January 2022, California’s state minimum wage is $15 per hour, the same as the L.A. County living wage rate. As of 2022, the MIT Living Wage Calculator estimates a living wage in L.A. County for a household with two working adults and two children to be $31.1130.