Living Wage

Source of the Problem

During the late 1800s, labor unions, socialists, and progressive religious leaders began lobbying the federal government to establish a minimum living wage rate for employees. When President Franklin Roosevelt proposed the first federal minimum wage law in 1938, the guiding principle was a fair day's pay for a fair day's work. His administration initially recommended a minimum wage of 40 cents an hour, but that was reduced to 25 cents an hour to achieve congressional approval. The minimum wage was not indexed to inflation or to a poverty threshold.

The minimum wage's purchasing power peaked in the mid- to late 1960s and has since declined steadily. The current federal minimum hourly wage of $5.15 would be $8.88, had it been indexed to inflation in 1968. Proponents of a higher minimum wage, frustrated with opposition from federal and state politicians, focused their lobbying efforts at the level of local municipalities and particular employers, such as school boards, colleges, and universities.

Advocates invoked the term living wage rather than minimum wage, because it highlighted the inadequacy of the current minimum wage and had greater moral resonance with the public. Living wage advocates argued that it was unethical for people working full-time to be paid a wage that kept them entrenched in poverty. Afulltime job should be a ticket out of poverty, they argued.

Opposition to a Living Wage

Neoclassical economists and many business owners oppose a legally mandated living wage. Arguments against the living wage are very similar to those against increasing the minimum wage. The most common arguments are the following:

• Wages should be determined by labor market supply and demand, not by politicians, government bureaucrats, or voters.
• Cities will lose the valued services of businesses that choose not to pay a living wage.
• Some small businesses cannot maintain profitability with higher labor costs.
• Businesses will have to raise prices for products and services to compensate for the higher wages, leading to local inflation.
• Cities will have to raise taxes to pay for the higherpriced services.
• Businesses will hire fewer low-skilled employees due to the higher wage rates.
• City businesses will relocate just beyond the ordinance's jurisdiction to avoid paying the higher wages, which would reduce the city's or county's tax [Page 1301]base, result in higher taxes for those that remain, and increase local unemployment.
• Businesses within a city paying high wages are at a competitive disadvantage to businesses operating just beyond the ordinance's jurisdiction due to higher labor costs.
• Artificially high wages will encourage some people to drop out of school because of the better short-term economic opportunities.

The latest research has shown that a modest increase in minimum wages does not negatively affect employment levels. However, many of the living wage amounts recently approved by local municipalities, such as Santa Fe's 2006 $9.50 citywide living wage, are substantially higher than the $5.15 federally mandated minimum wage.

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