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Published on Friday, December 7, 2001
A Living Wage Makes Good Economic Sense for Local Communities
by Peter Phillips
The wages for millions of the lowest paid workers in the United States are failing to meet their basic needs. Today workers can be employed full-time and still have incomes below the national official poverty line. This wage disparity is amplified for workers in high cost regions who find themselves unable to afford rent, food, and basic necessities. Reports from homeless shelter operators across the country indicate the regular use of emergency housing by full-time employed individuals and their families.

This situation has been magnified by a quarter-century decline in real family income for the bottom 40% of the workers in the U.S. The old adage that the poor get poorer is increasingly true. Attempts to address this issue have been widespread. Coalitions of progressive activists, labor unions, and church leaders have formed loosely knit living wage groups in many cities. The Living Wage Movement in the United States has now successfully achieved the passage of minimum wage ordinances in some 70 cities. These ordinances have mostly required city contractors to pay regionally determined wages that meet the basic needs of working families.

The Living Wage Movement often meets strong opposition. Resistance to establishing local living wage ordinances or increasing the minimum wage at State levels generally comes from business groups who claim that increasing wages for the lowest paid workers will expand unemployment, hurt small businesses, cause inflation, and encourage business relocation.

Research clearly shows that these concerns are misguided. When the lowest paid workers receive additional income, they rapidly spend that income to meet their basic needs. This new income circulating in the region more then offsets the increased salary costs for most businesses and will provide an overall fiscal boost to the local economy. Studies show that in cities where living wages have been implemented that the actual costs to business average less then 3% of revenue, and that increased sales or small graduated price increases easily cover these added wages. Furthermore there is no evidence indicating businesses shy away from living wage areas. Actually, a thriving economy is more likely to attract new businesses and encourage expansion, thereby increasing employment in the community.

When cities are considering the implementation of a living wage ordinance, a cost benefit analysis is often conducted to determine fiscal impacts. Generally missing from these reports are the long-term regional fiscal impacts of increased spending by low-wage workers.

New research conducted by myself and students from Sonoma State University in Santa Rosa, California provides an understanding of the positive effects of increased low-wage worker spending on local economies. The U.S. Bureau of Labor Statistics 1999 Santa Rosa PMSA report indicates that approximately 5,391 City residences work in jobs earning below $8.00 per hour. We conducted a random sample of these low-wage workers using addresses from the Santa Rosa reverse phone directory. On two weekends, teams of students from Sonoma State University physically went into the neighborhood locations seeking to find willing interviewees at or near the selected addresses. The teams were successful in locating and interviewing 44 individuals during the period. We are 70% statistically confident that our sample survey of 44 individuals represents the answers for the entire low-wage population in Santa Rosa. Of the 44 persons interviewed it should be noted that over half were 25 years or older and close to half were the primary wage earner for their families.

The purpose of the interviews was to determine the likely spending patterns of people making below $8.00 an hour were they to earn a living wage. A series of questions was asked to determine how low-wage individuals would most likely spend their increased wages. For the purposes of the study a $400 a month average increase in disposable income was assumed for individuals working over 20 hours a week, and a $200 increase for individuals working less than 20 hours per week.

The results of the study indicate that if all of the 5,391 lowest-wage individuals living in Santa Rosa made a living wage, they would circulate in the local economy an additional $23,818,301 per year. This amount would be spent in the following manner: Housing-11.9%, Auto Purchases-13.6%, Auto Repairs-6.8%, Clothes-9.1%, Food-6.2%, Movies-3.0%, Video Rentals-0.8%, Restaurants-5.0%, Credit Card Debt-8.0%, New Purchases for Home & misc.-9.1%, Vacations/travel-3.0%, Tapes and CDs-2.3%, Sports Activities-2.3%, Books and Magazines-0.6%, Schools & Childcare-3.5%, Savings-14.8%.

These amounts are substantial. Santa Rosa auto dealers should know that they would receive over $4,500,000 in new sales and repair orders given the implementation of a living wage in the City.

With this new research it now is easier to predict the potential positive economic benefits from a living wage. Business owners and city managers everywhere should be joining the Living Wage Movement and demanding the end to low-wages in the United States. It makes good economic sense for all of us, and the poor do not have to be poorer.

Peter Phillips is an Associate Professor of Sociology at Sonoma State University and director of Project Censored a media research group. E-mail:


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