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John Petro

Growth of Low Wage Jobs Puts City Economy on Shaky Ground

With the Senate on the verge of voting on financial reform legislation, there are many who fret about the impact that reform will have on New York City's economy. After all, the city has already lost about 48,000 financial sector jobs since 2007. Mayor Bloomberg has warned that the city's economy is "very dependent" on the financial sector, and that new regulations will hurt the city's ability to grow back high-paying finance sector jobs.

But there is another trend in the city's job market that should be keeping the Mayor up at night: the growth of low-paying service sector jobs in New York City.

Already one in three working New Yorkers are in jobs that pay less than $24,000 a year. And the city's fastest growing occupations are also those that pay poverty-level wages, like home health aides and retail workers. This growth has the potential to destabilize the city's economy, as more and more families are dependent on poverty-level jobs to make ends meet.

I'm not talking about pure altruism here. Poverty-level jobs hurt everyone, from Mom and Pop business owners to fat-cat bankers. When every dollar goes towards basic necessities like food and rent, families supported by low-wage work are unable to contribute more to the city's economy, hurting neighborhood retailers and the city's tax base.

Low-wage work has serious impacts on consumer spending in the local economy. Economists at the Federal Reserve Bank of Chicago found that boosting wages for low-income families by $1 an hour results in nearly $3,500 in new spending at local businesses over the course of a year. Multiply that by thousands of families and it adds up to a tremendous amount of new spending flowing to small neighborhood businesses. Instead of relying on Wall Street bonuses to trickle down to small businesses, we're talking about generating wealth from the bottom up.

Currently low-wage jobs act as a millstone around the city economy's neck. Less consumer spending by working families in poverty means fewer tax dollars flowing to city coffers, and families that earn poverty-level wages are forced to rely on public assistance to make ends meet.

The growth of low-wage work is not just a New York phenomenon. Richard Florida, professor and author of the new book The Great Reset, notes that more than 40 percent of Americans work in low-wage service sector jobs. Asked what we can do about it, Florida replies, "Companies need to try to engage workers and ask them to think innovatively about their work processes."

But cities across the country are taking control of low-wage work, transforming poverty-level jobs into good paying jobs that help families get by and stimulate economic growth. In Los Angeles the city ensures that every job that is created through economic development subsidies is a good job with good wages and benefits. But in New York, Mayor Bloomberg has resisted efforts to create good jobs through economic development subsidies when he flatly refused to support living wage jobs at the Kinsgbridge Armory redevelopment earlier this year.

Other cities are going even further. Santa Fe and San Francisco both have citywide minimum wages that are above the federal minimum wage. According to Paul Sonn of the National Employment Law Project, "The 2004 increase in San Francisco's minimum wage is estimated to have boosted spending in low-income communities by as much as $70 to $90 million annually." With New York ten times the size of San Francisco, the benefit for local businesses could potentially be ten times as great.

Any attempts to raise wages through a citywide minimum wage would likely be fiercely opposed by Mayor Bloomberg. Instead, the mayor is putting his hopes on the financial sector to save the city's economy--the very same sector that brought the national and city economies to their knees. But even if the financial sector employment grows back to where it was before the financial crisis, the prevalence of low-wage work will still keep the city's economy from reaching its full potential.

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Posted at 12:24 PM, May 19, 2010 in Urban Affairs
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