Center for American Progress

Economic Development Wage Standards Have No Negative Effect on Citywide Employment
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Economic Development Wage Standards Have No Negative Effect on Citywide Employment

Evidence from a new CAP Action report 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.

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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.

"Creating Good Jobs in Our Communities," a new CAP Action report by T. William Lester and Ken Jacobs, 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 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 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.

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