Are Living Wage Ordinances Effective?

David Fairris et al claim to have “the most definitive analysis” of the Los Angeles Living Wage Ordinance’s impact on workers and employers. The report automatically draws some skepticism, since it’s sponsored by the very organization that advocated for the 1997 law. But everyone deserves a fair shot, right? So let’s take a close look at the details.

According to the authors, the ordinance has “increased pay for an estimated 10,000 jobs, with minimal reductions in employment.” This conclusion stems from three random-sample surveys of employees and firms. But, while the methodology tries valiantly to determine whether there are significant benefits to workers who are impacted by the living wage, it encounters a pretty serious problem (emphasis added):

Considerable effort went in to analyzing and completing the city’’s database of contracts. Because contracts were constantly being renewed, the contractors were changing as we conducted the survey. We would call firms only to find that they no longer held a contract with the city and hence were no longer willing to cooperate with the survey. At first we thought we would interview some of these firms (and workers from these firms) to see what had happened after the Living Wage Ordinance no longer applied to the firms, but this proved impossible. Almost no one would cooperate and we had no way for the City to compel them to participate. This was such a problem that in two instances the contract expired after we interviewed the firm and as a result the firms refused to provide contact information for the workers. Therefore, there were only two interviews conducted with firms — —both small — —that did not have current city contracts when we took a sample, and six interviews with firms whose contract expired between the time we selected them and we interviewed them. This study does not specifically address what happened in the firms that no longer have a city contract.

The ordinance applies to firms that do business with the city, so the examination should ideally focus on the entire pool of affected municipal contractors (and, ultimately, the workers therein). But, as the authors concede, firms moved in and out of the pool.

Several questions then arise: why did certain firms leave? How many of them were there? What characteristics did they have? It’s very possible — indeed, I would say that it’s quite likely — that some contractors exited precisely because they struggled to comply with the ordinance. Yet the study doesn’t capture this dimension, so there’s reason to suspect that its estimates are biased.

Even if we assume that the findings are accurate, we should think twice before expanding the program. Over 60% of affected workers are stationed at airports. Now, consider what’s taken place in this industry since 9/11:

Since our employer survey in 2002, the most significant change in the composition of living wage jobs has been the federalization of 1,200 security screeners. Therefore, we present data for directly affected jobs as they were at the time of our survey (including screeners), and current data, which excludes screeners. Before federalization, airline services jobs represented nearly a third of all directly affected jobs, while today they make up less than 20 percent.

That’s yet another dynamic that could have skewed the results. Overall, as the chief economist of the Los Angeles County Economic Development Corporation notes, “airport workers are in somewhat of a bubble.” More broadly, contract work differs from other forms of employment, so you have to wonder about general applicability.

But I think that the study’s fundamental drawback relates to its narrow scope: it restricts itself to employee and employer effects. Practically speaking, I recognize that expansive analyses are very difficult and expensive, so the restriction is somewhat understandable. If we want to be precise, however, we’d also have to look into such factors as contractor selection. Assuming that a substantial number of firms exits, does the city suffer from poorer services, reductions in bidding competition, and the like? This and other questions are worth pondering.

FILED UNDER: Economics and Business, General
Robert Garcia Tagorda
About Robert Garcia Tagorda
Robert blogged prolifically at OTB from November 2004 to August 2005, when career demands took him in a different direction. He graduated summa cum laude from Claremont McKenna College with a Bachelor of Arts in Philosophy, Politics, and Economics and earned his Master in Public Policy from Harvard's Kennedy School of Government.