Living Wage Laws: Good for Workers and Good for the Economy

In an era when the richest one percent of American households are reported to be collecting close to a quarter of the country's overall income, it makes sense to hear increasing talk about a "living wage" for the millions of workers at the other end of the income spectrum.

As New York and other cities consider new living wage policies on economic development projects, it makes sense to look at San Francisco, which has put in place extensive labor standards policies over the last decade and where a recent agreement extended living wage provisions to a major new development project at the Hunters Point Shipyard.

The shipyard agreement in San Francisco applies living wage requirements to the broadest scope of employers in a private commercial development anywhere in the United States. That it was achieved quietly and without fanfare speaks volumes about the success of the city's wage ordinances, and stands in marked contrast to the current debate in New York.

The Hunters Point Shipyard redevelopment project is expected to generate up to 10,000 permanent jobs. It will include 635,000 square feet of retail space, 2.65 million square feet of office and research and development, a hotel and a brand new NFL stadium (if the 49ers agree). An estimated 1,500 of the 10,000 projected jobs will be in retail, 1,400 in wholesale and trade and 26,000 in the service sector. As part of the agreement, all firms with 20 workers or more must pay a minimum of $11.54 an hour and provide 12 days of paid time off a year (or a cash equivalent). Employers at the shipyard will also be covered by San Francisco's paid sick leave and health care policies.

It has been 10 years since San Francisco passed its initial living wage ordinance and it is worth looking at the results.

The proposal to require employers doing business with San Francisco to meet higher minimum wage and benefit standards was highly contentious. As we are currently hearing in New York, business leaders argued that it would hurt business competition and reduce jobs, and the Golden Gate Restaurant Association successfully fought plans to extend the law to businesses on city property outside of the San Francisco International Airport.

After the law was adopted, San Francisco passed several other labor standards policies that apply to all businesses in the city, including a minimum wage now at $9.92 an hour, paid sick leave, and a requirement that employers meet minimum standards for spending on employee health care.

The evidence is strong that businesses have quickly adapted to the laws without damaging economic growth, which the developers of the Hunters Point Shipyard clearly understood. A UC Berkeley study of the living wage policy at the San Francisco International Airport found that the program led not only to significant pay increases for 12,000 workers, but employers and employees alike reported improved work effort and morale, dramatically lower turnover and better customer service. The study found no negative effect on employment.

Academic studies of San Francisco's minimum wage and health care security ordinance, including one by a former member of President George W. Bush's Council of Economic Advisors, similarly found positive effects for employees and no measurable effect on jobs in the industries most impacted by the law.

San Francisco's labor standards laws do not appear to be deterring retailers who want to locate in the city or developers looking for tenants or project financing. A new Lowe's just opened up in the city, just a short drive from their existing store in South San Francisco, which has no labor standards requirements beyond what is in state law.

What can other cities contemplating similar policies learn from San Francisco's experience? Two important new studies shed light on this.

One, by a team of economists at UC Berkeley, examined every county in the United States that borders another county across state lines and has had a different minimum wage at any time over the last quarter century. A second study, of which I was a co-author, examined employment and business growth in cities with policies placing living wage conditions on economic development subsidies. Both studies used sophisticated econometric techniques to isolate the policies' impacts and both found no measurable impact on employment.

The verdict is clear: labor standards policies of the kind San Francisco put in place improve workers' income, productivity and health, reduce turnover and decrease job vacancies; they have not reduced the number of jobs.

This is good news indeed for the workers and businesses in cities, such as New York, that are considering new living wage policies on economic development programs. San Francisco may be unique in the breadth of protections we provide our workers, but we are not special in our need to improve labor standards.

Stagnating and declining wages for low- and middle-income Americans helped create our current economic crisis. Improving wages at the bottom will be an important ingredient to get more money circulating into the economy and build sustainable growth.