Living wage laws

Evidence Rating  
Some Evidence
Evidence rating: Some Evidence

Strategies with this rating are likely to work, but further research is needed to confirm effects. These strategies have been tested more than once and results trend positive overall.

Health Factors  
Decision Makers

A living wage is a locally mandated wage that is higher than state or federal minimum wage levels. Living wages may be set at the level needed for a family of four to meet the federal poverty guidelines1, $27,750 for a family of four in 20222. Alternative methods for calculating living wages adjust wages based on city, state, or metro area; family composition; and include additional expenses, such as childcare, taxes, and savings1. Some laws mandate or encourage firms to provide health coverage and other benefits to workers3. Living wage laws may apply to workers at businesses that have contracts with or that receive financial assistance, a business license, or registration from the city or county; in some cases, all municipal employees are covered3, 4. Living wage initiatives may overlap with efforts to increase local minimum wage1, 3. Some local governments cannot enact such measures due to state preemption legislation5. Companies may also adopt living wage policies as part of corporate responsibility initiatives or participate in voluntary living wage certification programs, with criteria specified by living wage advocates6.

Expected Beneficial Outcomes (Rated)

  • Increased earnings

  • Reduced poverty

Evidence of Effectiveness

There is some evidence that living wage laws increase wages for covered workers and modestly reduce poverty rates7, 8, 9. Additional evidence is needed to confirm effects.

Living wage laws appear to help workers just below and just above the poverty line the most9. Moderate living wage requirements applied to local government, and to contractor and grantee employees funded by local government, are the most likely to reduce poverty rates10. In some cases, living wage ordinances can lead firms to lay off workers or reduce workers’ hours7, 8, 9. Ordinances with relatively lower costs to firms reduce the likelihood of other unintended consequences such as firm relocation and employee displacement11. Increased wages may encourage higher-skilled individuals to join the applicant pool12; to minimize the likelihood of displacing the lowest-skilled workers, some researchers suggest setting wages close to market rates10. A nationwide study of living wage ordinances finds no city-level effects, positive or negative, on average wages, poverty rate, or unemployment; the lack of city-wide effects may be due to the limited number of workers covered by ordinances, or ordinances setting wage thresholds too low3.

Living wage laws and initiatives can be implemented without significant negative effects on employment or business growth3, 11, 13. A study of Los Angeles’ living wage, for example, found that participating businesses reduce employee turnover, absenteeism, overtime hours, and job training needs compared to other businesses14. Studies of Boston’s living wage found that covered businesses increase full-time staffing15 and reduce internal wage inequality16. A survey of businesses participating in a Vancouver, Canada, living wage certification program suggests such programs may increase worker recruitment and retention, while decreasing training costs6.

Research suggests that living wage ordinances are associated with reductions in property-related crime4. Living wages may improve mental health among workers: in a study of London’s living wage, service sector employees who work for a living wage employer appear to have greater psychological well-being than those who do not17.

Equity Analysis

Potential to decrease disparities: Supported by some evidence

There is some evidence that living wage laws have the potential to decrease disparities in socioeconomic status by modestly reducing poverty for covered workers earning lower wages, compared with workers earning higher wages7, 8, 9. Living wage laws are designed to increase families’ income and reduce poverty; wage rates are indexed to the federal poverty threshold3. In practice, living wage ordinances are usually implemented at the city or county level, covering a limited number of urban workers employed by or through the municipality3. Families with a single earner and multiple children may see less poverty reduction, especially with part-time employment3.

A 2002 study on Los Angeles’ living wage ordinance for city employees and contractors suggests that female and Black workers were more likely to be affected by the ordinance, since they make up a greater percentage of the public sector workforce. Most workers affected by the ordinance were full-time employees, with a high school education or less; 58 percent were age 35 or older; 50 percent were Latino; 29 percent were Black; and 57 percent were women28. About 50 percent of affected workers were immigrants to the U.S. Most workers who benefited had been in the workforce an average of 20 years14. As of January 2022, California’s state minimum wage is $15 per hour, the same as the L.A. County living wage rate29. As of 2022, the MIT Living Wage Calculator estimates a living wage in L.A. County for a household with two working adults and two children to be $31.1130.

Cities which pass living wage laws are more likely to be urban. Experts suggest businesses are unlikely to relocate from cities to avoid living wage requirements, since it is typically more expensive to relocate than to increase employee wages3. Living wage laws or ordinances are less likely to be in place in cities in the southern US3. States in the southern US contain most counties where Black or Hispanic people are the majority or represent a larger population share than in the US overall31. Black people make up 58% of the population in the southern US31.

Historical Context

Advocates for a minimum wage in the late 19th and early 20th centuries described it as a living wage, arguing that a minimum wage should cover an individual’s basic needs32, 33. In response, the U.S. federal minimum wage was established in 1938 via the Fair Labor Standards Act, with related worker protections34. The aim was to set a minimum standard for conditions needed to support workers’ health, efficiency and well-being35. However, the minimum wage is not indexed to inflation and policymakers have not increased the federal minimum wage alongside increases in the cost of living36. As such, the value of the minimum wage has eroded over time while the median wage has increased. This contributes to growing inequality between low-wage and middle-wage workers37 and lowered living standards for workers earning minimum wage38.

Living wage campaigns in the 1990s and later have drawn attention to workers living in poverty and asserted that the minimum wage does not qualify as a living wage as it fails to meet workers’ and their families’ basic needs without supplemental assistance39. Campaigns, such as in Baltimore, have been supported by coalitions which include workers and activists of color, women, and immigrants32. Such campaigns advocate for adoption of local wages above the federal minimum, basing estimates on the income a family of four would need to pay for childcare, food, health care, transportation, and other necessities32. Campaigns often advocate for related rights and protections for workers, such as paid vacation and protections for those doing union organizing, and often for raising minimum wages statewide32. Experts suggest that successful living wage campaigns include a coalition aligning trade unions and community-based social justice advocates32. Living wage laws in practice cover a smaller percentage of workers than the federal minimum wage. Some cities with living wage ordinances went on to pass a higher city minimum wage, covering more workers3.

Since 1997, 26 states have passed preemption laws which prevent localities from implementing a minimum wage or living wage higher than the state minimum (or federal minimum, in some states), regardless of local costs of living5. These include states in the southern U.S. with the lowest wages40, the highest percentages of Black Americans31, and the most rural counties with high and persistent rates of poverty41.

Equity Considerations

  • How do wages in your area compare to local living wage estimates? What would individuals from different family structures need to earn to cover their basic needs?
  • Who would benefit the most from living wage laws in your community? How can a policy be implemented or amended to maximize reach and benefits?
  • What efforts exist in your area or state to increase wages in job sectors with historically low wages, such as hospitality? How can you partner or align with those efforts?
  • What strategies can you consider to ensure that living wage laws keep up with inflation and increases to cost of living?
  • How do preemption laws impact your ability to implement living wage laws?

Implementation Examples

Local conditions determine optimal wage levels and implementation strategies. The City of Hartford, Connecticut uses a calculation similar to the Living Wage Calculator to set a living wage rate which exceeds federal poverty guidelines (Hartford-Living wage) and the state minimum wage18. Los Angeles’ living wage ordinance requires employers to offer a wage that includes health insurance at no cost to employees; if employees opt out of health insurance coverage, employers must pay them a higher living wage19.

In Santa Fe, New Mexico, the mandatory living wage ordinance applies to all employers who receive a business license or registration from the city, and employers must post notice of compliance in a prominent place, in English and Spanish20, 21. Washington, DC has a living wage law for government contracts22 as well as a living wage certification program23.

Living wage initiatives may become or include campaigns for increased local minimum wages. In North Carolina, the coalition Just Economics has certified over 400 employers as providing a living wage and belongs to the statewide coalition advocating to raise the state minimum wage24. San Francisco’s Living Wage Coalition worked to increase wages for municipal workers at the San Francisco Airport and now supports the city’s minimum wage law3, 25.

As of 2020, 25 states have preemption laws in place which prohibit mandatory living wage ordinances and local minimum wage laws5; Colorado repealed its preemption law in 201926. Communities and developers may design a Community Benefits Agreement (CBA) that includes living wage requirements for development projects, even if a city does not have a local living wage ordinance27.

Implementation Resources

Living Wage Calculator - Living Wage Calculator. Introduction to the living wage calculator.

Self-Sufficiency Standard - Center for Women’s Welfare (CWW). Self-Sufficiency Standard.

Family Budget Calculator - Economic Policy Institute. Family Budget Calculator.

LWN - Living Wage Network (LWN).

Footnotes

* Journal subscription may be required for access.

1 Luce 2017 - Luce S. Living wages: A US perspective. Employee Relations. 2017;39(6):863-874.

2 US DHHS-Poverty - Office of the Assistant Secretary for Planning and Evaluation (ASPE). 2020 HHS poverty guidelines: One version of the [US] federal poverty measure. US Department of Health and Human Services (US DHHS).

3 Sosnaud 2016* - Sosnaud B. Living wage ordinances and wages, poverty, and unemployment in US cities. Social Service Review. 2016;90(1):3-34.

4 Fernandez 2014* - Fernandez J, Holman T, Pepper JV. The impact of living wage ordinances on urban crime. 2014;53(3):478-500.

5 EPI 2018 - Economic Policy Institute (EPI). Worker rights preemption in the US.

6 Ptashnick 2015* - Ptashnick M, Zuberi D. Certifying voluntary living wage employers. International Journal of Sociology and Social Policy. 2015;35(9-10):618-634.

7 Urban-Holzer 2008 - Holzer HJ. Living wage laws: How much do (can) they matter? Washington, DC: Urban Institute; 2008.

8 Clain 2008* - Clain SH. How living wage legislation affects US poverty rates. Journal of Labor Research. 2008;29(3):205-18.

9 Adams 2005 - Adams S, Neumark D. Living wage effects: New and improved evidence. Economic Development Quarterly. 2005;19(1):80-102.

10 Bartik 2004 - Bartik TJ. Thinking about local living wage requirements. Urban Affairs Review. 2004;40(2):269-299.

11 Pollin 2005* - Pollin R. Evaluating living wage laws in the United States: Good intentions and economic reality in conflict? Economic Development Quarterly. 2005;19(1):3-24.

12 Fairris 2008* - Fairris D, Fernandez Bujanda L. The dissipation of minimum wage gains for workers through labor-labor substitution: Evidence from the Los Angeles living wage ordinance. Southern Economic Journal. 2008;75(2):473-96.

13 Lester 2011* - Lester TW. The impact of living wage laws on urban economic development patterns and the local business climate: Evidence from California cities. Economic Development Quarterly. 2011;25(3):237-54.

14 Fairris 2005* - Fairris D. The impact of living wages on employers: A control group analysis of the Los Angeles ordinance. Industrial Relations. 2005;44(1):84-105.

15 Brenner 2005* - Brenner MD. The economic impact of the Boston living wage ordinance. Industrial Relations. 2005;44(1):59-83.

16 Brenner 2005a - Brenner MD, Luce S. Living wage laws in practice: The Boston, New Haven and Hartford experiences. Political Economy Research Institute, University of Massachussets, Amhearst; 2005.

17 Flint 2014* - Flint E, Cummins S, Wills J. Investigating the effect of the London living wage on the psychological wellbeing of low-wage service sector employees: A feasibility study. Journal of Public Health. 2014;36(2):187-193.

18 CT-Wage - State of Connecticut. Governor Lamont signs minimum wage increase. May 28, 2019.

19 LA BCA-Living wage 2018 - City of Los Angeles, Bureau of Contract Administration. Rules and regulations implementing the living wage ordinance. 2018.

20 Santa Fe-Living wage - City of Santa Fe. Living wage information.

21 Santa Fe-LWO - Santa Fe County. Living wage ordinance (LWO).

22 DC-LW 2020 - Washington DC, Department of Employment Services. Living wage fact sheet 2020.

23 DC Council-LWC - Council of the District of Columbia. Living wage certification program.

24 JE-Living wage - Just Economics. Living wage employer certification program.

25 SF LWC - San Francisco Living Wage Coalition.

26 NELP-Lathrop 2019 - Lathrop, Y. Raises from coast to coast in 2020: Minimum wage will increase in record-high 47 states, cities, and counties this January. New York, NY: National Employment Law Project (NELP); 2019.

27 Gross 2005 - Gross J, LeRoy G, Janis-Aparicio M. Community benefits agreements: Making development projects accountable. Good Jobs First and the California Partnership for Working Families. 2005.

28 Fairris 2005a - Fairris D, Runsten D, Briones C, Goodheart J. Examining the evidence: The impact of the Los Angeles living wage ordinance on workers and businesses. Los Angeles: Los Angeles Alliance for a New Economy; 2005.

29 LA-LWO - City of Los Angeles Department of Public Works, Bureau of Contract Administration (BCA). Living wage ordinance (LWO).

30 Living Wage Calculator - Living Wage Calculator. Introduction to the living wage calculator.

31 Brookings-Frey 2019 - Frey WH. Six maps that reveal America’s expanding racial diversity. Washington, DC: Brookings Institution; 2019.

32 Evans 2016 - Evans B, Fanelli C. A survey of the living wage movement in Canada: Prospects and challenges. Interface. 2016;8(1):77-96.

33 Luce 2005* - Luce S. The role of community involvement in implementing living wage ordinances. Industrial Relations. 2005;44(1):32-58.

34 US DOL-FLSA - US Department of Labor (US DOL). Wages and the Fair Labor Standards Act (FLSA).

35 Bernstein 2014* - Bernstein J, Shierholz H. The minimum wage: A crucial labor standard that is well-targeted to low- and moderate-income households. Point/Counterpoint. Journal of Policy Analysis and Management. 2014;33(4):1036-1043.

36 CBPP-McNichol 2004 - McNichol L, Springer J. State policies to assist working-poor families. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2004.

37 Autor 2016 - Autor DH, Manning A, Smith CL. The contribution of the minimum wage to US wage inequality over three decades: A reassessment. American Economic Journal: Applied Economics. 2016;8(1):58-99.

38 CBPP-Minimum wage 2018 - Center on Budget and Policy Priorities (CBPP). Policy basics: The minimum wage. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2018.

39 Horton 2018* - Horton A, Wills J. Chapter 13: Impacts of the living wage on in-work poverty. In: Lohmann H, Marx I, eds. Handbook on In-Work Poverty. Cheltenham, UK: Edward Elgar Publishing; 2018:228-244.

40 Godoy 2019 - Godøy A, Reich M. Minimum wage effects in low-wage areas. Institute for Research on Labor and Employment (IRLE). 2019: Working Paper 106-19.

41 USDA-ERS 2019 - US Department of Agriculture (USDA), Economic Research Service (ERS). High and persistent poverty rates in US rural counties, 2019.

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