Living Wage Provisions

What is it?

Why Use it?

How to Use It

Key Players

Resources

Financing

Because living wage ordinances cover only a small share of the locality's workforce (usually less than 1%), employers usually absorb costs rather than increase price of contracts or leave the market.

Costs to employers who pay a living wage

Detroit, Michigan is a city with a population of almost one million residents and has an annual budget of $2.5 billion. An analysis of the living wage impact on Detroit's service contracts found the following results:

For more than half of contract employers, cost increases represented less than one percent of the funds they received for the contracted work. None had cost increases above ten percent.
Modest costs are involved in meeting the living wage requirements. The study concluded that the living wage could be applied to the entire city with minor fiscal impact.
If the wages were applied to all workers in the city, the costs would amount to less than three tenths of one percent of Detroit's city budget.

Source: Center for Urban Studies and Labor Studies Center

To date, studies on the effects of living wage provisions indicate that increased wages have posed minimal financial strain on employers or cities. Furthermore, while paying a living wage potentially increases the amount of money the locality spends on contracts, local governments can reap savings as families become less reliant on income supports and social services.

Employer's response to a living wage

"The living wage law makes recruiting much nicer and makes the turnover factor much, much lower. If you work for a company that pays more, you want to hold onto that job.
Tom McGowan
President
Broadway Services

The increased costs of paying a living wage are minimized or offset for the employer through efficiency gains, including:

Reduced recruitment and training costs . Higher wages lead to a decreased worker turnover rate, saving employers money on training costs.
Increased productivity and improvement of workforce. Providing higher wages and benefits creates a stronger, more productive workforce because there are higher costs associated with job loss.

Framing Costs

Cities with a large urban core often lack the budget to pay for new ordinances. Presenting the city with an analysis of projected compliance and monitoring costs is an effective way of demonstrating how the ordinance is feasible and beneficial to the community. Cost considerations should include an analysis of where within the city budget money could come from. Costs can be presented in terms of affecting one of the following parties:

Cost to taxpayers
Cost for contracts
Cost for employers

Do Efficiency Gains Really Make a Difference?

In 1999, Bliss & Associates and Gately Consulting developed a formula that measures an employer's costs in employee turnover. They found that turnover costs are at least 150% of the employer's base salary. For example, consider a company that has 100 employees with an average base salary of $17,500 and a 10% turnover rate. The company will spend $262,500 to replace those workers, when training costs, loss of productivity, new hires, recruitment costs, and lost sales costs are calculated.
Source: Bliss & Associates and Gately Consulting