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Creating Good Jobs in Our Communities – How Higher Wage Standards Affect Economic Development and Employment

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 ofunobservable 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.

T. William Lester and Ken Jacobs November 2010

Full Study: http://www.americanprogressaction.org/issues/2010/11/pdf/living_wage.pdf

Many thanks to Dan Ripke for bringing this story to our attention.

Dan Ripke

Center for Economic Development and
Northeastern California SBDC

California State University, Chico

[email protected]

@DanRipke

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