Evaluating Living Wage Laws in the United States: Good Intentions and Economic Reality in Conflict?

This paper first examines the question “what is a living wage” and provides a range of specific dollar amounts derived a conceptual assessment of the term. I then provide a series of cost estimates of living wage laws in various cities. Based on these cost estimates, I examine a set of alternative adjustments that covered firms could make to absorb these costs, including raising prices and productivity, redistributing the firm’s income more equally, laying off employees and relocating out of the area covered by the law. I draw upon both prospective and retrospective evidence to reach an overall assessment of the benefits of living wage laws relative to their costs. JEL CLASSIFICATION: J38 This paper builds from a series of research projects I have undertaken in collaboration with co-workers at the Political Economy Research Institute. I acknowledge with respect and appreciation the contributions of Jeanette Wicks-Lim, Stephanie Luce, and Mark Brenner. I am also grateful for the comments by three anonymous referees and Timothy Bartik, the coeditor of this journal.