Creating Good Jobs in Our Communities

How Higher Wage Standards Affect Economic Development and Employment

T. William Lester and Ken Jacobs examine living wage laws and how they affect job growth and economic development.

Executive summary

From sports arenas to high-tech manufacturing zones and from commercial office buildings to big-box retail, local governments spend billions of dollars every year to entice private businesses to invest in their communities and create jobs. Yet these public funds often help create jobs that pay poverty-level wages with no basic benefits.

Cities across the country are working to gain greater control over these projects and help create quality jobs by attaching wage standards to their economic development subsidies. Communities are linking labor standards to public development projects in various ways, including community benefits agreements and prevailing wage laws. But the most common and comprehensive policies are business assistance living wage laws, which require businesses receiving public subsidies to pay workers wages above the poverty level.

These economic development wage standards have successfully raised pay for covered workers. Yet opponents of these standards argue that such laws prevent businesses from creating jobs and thus help some workers at the expense of employing more workers. Some business leaders and developers also claim that adding labor standards to economic development projects will scare away potential investors by sending an “antibusiness” signal.

This report examines these claims and finds that economic development wage standards have no negative effect on citywide employment levels. This casts serious doubt on arguments that standards dampen municipalities’ ability to use subsidies to attract new businesses or create negative business climates where all firms avoid investment.

The study finds that the 15 cities effectively implementing business assistance living wage laws—Ann Arbor, Berkeley, Cambridge, Cleveland, Duluth, Hartford, Los Angeles, Minneapolis, Oakland, Philadelphia, Richmond, San Antonio, San Francisco, San Jose, and Santa Fe—had the same levels of employment growth overall as a comparable group of control cities. The study also finds that these laws do not harm low-wage workers. Employment in the low-wage industries most likely affected by the living wage laws was unaffected by the change.

The study is the most methodologically sound, quantitative study conducted to date on business assistance wage standards. It uses the best available data that tracks employment by establishment and establishment movements over time in order to make accurate accounts of employment change at the city level. The study carefully selects cities that have effectively implemented business assistance living wage laws and ensures a controlled comparison that minimizes the effects of unobservable variables by comparing 15 living wage cities to 16 cities with similar attributes where advocates lodged unsuccessful campaigns to pass such ordinances.

This study provides a strong test of the economic impact of wage standards because business assistance living wage laws are the type of economic development wage standard likely to have the most widespread effect on employment. Other types of economic development wage standards, such as community benefits agreements and prevailing wage laws, either affect far fewer projects or are more closely tied to market wages, and are thus are even less likely to have any effect on employment.

This report—like the groundbreaking studies that established that minimum wage laws do not kill jobs as opponents maintained—brings academically sound, empirical research to bear on a debate that for too long has been relatively uninformed by quality, comparative evidence on the laws’ actual effects.

The evidence demonstrates that raising job standards does not reduce the number of jobs in a city. This means that job growth does not have to come at the expense of job quality. Local government leaders can therefore ensure that taxpayer dollars do not subsidize poverty wages by supporting economic development wage standards and feel confident that their local business climate will not be affected.

 Read more here.

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