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Amy Traub

No More Contracts with the Devil! What Obama Learned from Municipal Living Wage Laws

Want to pay your employees less than it takes to support a family, force Medicaid and hospital emergency rooms to pay for their health care, and break a few labor laws to push costs down further? You may be able to get away with it - but you can damn well do it without relying on taxpayer dollars to stay in business.

That's the message of more than a hundred living wage laws passed by American cities and counties over the past fifteen years. These local ordinances have raised wages, improved benefits, and increased workplace productivity without harming employment or significantly impacting municipal budgets. Now it looks like their powerful example is resonating all the way to the White House, with reports that the Obama Administration is developing a federal procurement policy that would reward companies that provide solid pay and benefits while shunning firms that repeatedly violate workplace and environmental laws.

The proposed federal policy will likely turn out to have weaker provisions than many municipal living wage laws - while cities often require companies with contracts above a certain level to pay living wages, the federal government would merely give living wage employers an advantage in bidding. But a less stringent policy could be more than outweighed by the potential scope: while most municipal living wage laws affect only a few hundred workers, an estimated 22 million employees work for federal contractors. As a result, a well-crafted federal contracting policy has the potential to boost many more low-income workers into the middle class.

Opponents of a federal living wage policy have been quick to attack the proposal, but they're relying on the same stale arguments that have already been discredited by research on the impact of dozens of city policies.

Exhibit number one: the U.S. Chamber of Commerce, which warns that contracting reforms "could increase costs to taxpayers by $100 billion a year at a time when we are struggling with unsustainable deficits." The numbers do indeed sound alarming. Yet research on the impact of municipal living wages finds that city governments have systematically overestimated the costs to the public before living wages went into effect. In Los Angeles, for example, living wage opponents projected costs as high as $40 million before the ordinance was passed: actual expenditures totaled less than a tenth of that. Similarly, a 2003 analysis of 20 living wage laws across the nation found that any increase in contracting costs generally amounted to less than 0.1% of total city budgets in the years following the passage of a living wage law. Some cities saw no measurable increase in costs at all, as a competitive bidding environment forced contractors to reduce their own profits in order to raise pay for their low-wage workforce.

Meanwhile, a group of Republican Senators has raised an alarm about "undermining the diversity of the Federal contracting base and lessening competitive pressure on larger Federal contractors." Yet a survey of living wage research by the Economic Policy Institute finds that some living wage laws had the opposite effect, improving the competitive environment and encouraging offers by new firms that were previously "unwilling to bid when the outcome of the contract was determined exclusively by who could offer the lowest wages." And while the Republican Senators cite a concern for small businesses (so often a fig leaf for the interests of large multinational corporations), new federal contracting standards would in fact make it easier for small companies that already take the "high road" by paying employees living wages and solid benefits to compete for federal contracts.

If history continues to be our guide, we can expect to see arguments that living wage standards in federal contracting will harm employment (discredited - but already being revived by a Chamber of Commerce blog post listing contracting reform as a "job-killer") as well as nebulous contentions that the government's decisions about who to do business with somehow represent unfair meddling in the otherwise unconstrained free market. Luckily, cities have already been there and done that, and can provide hard evidence that the sky does not fall when the government uses its purchasing power to improve the lot of its citizens.

For many years when the federal government issues of poverty and the rise of low-wage, poor quality jobs, grassroots organizers worked to enact and enforce living wage laws in America's cities. Today, the entire nation can benefit from their efforts.

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Posted at 8:27 AM, Mar 04, 2010 in Corporate Accountability | Employment | Labor
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