Living Wage Will Not Reduce Poverty, But Will Cost Taxpayers

September 16, 2013

by James Wigderson
Special Guest Perspective for the MacIver Institute

Milwaukee County Supervisor David Bowen announced last week he intends to introduce a resolution creating an ordinance to require all contractors and sub-contractors doing business with the county to pay a “living wage.” The “living wage” for a full-time employee is defined in this case as “the poverty income level for a family of four as defined by the U.S. Department of Health and Human Services.”

That works out to $23,550 per year, or roughly $11.33 per hour. The federal minimum wage is $7.25 per hour.
Bowen’s plan is long on promise but short on details. His office confirmed earlier this week that the resolution is still in the “draft “stage. He was unable to tell me how comprehensive his pay proposal will be.

That leaves open some very important questions. For example, will this “living wage” proposal also include a health insurance or life insurance benefit requirement?

In August, the Business Journal reported that the County Board was considering a different “living wage” proposal that would cover developers using county land or receiving assistance from the county. That “living wage” proposal, being drafted by “union and community organizations” with county board members, would be $11.20 to $15 per hour with health benefits.

Both proposals are different from another union-supported “living wage” campaign for a minimum $15 per hour for fast food workers.

Bowen’s proposal for county contractors and subcontractors promises to “end growing poverty,” but he did not have an answer on whether the “living wage” requirement would have exemptions for internships, jobs aimed at youth employment, or obviously entry-level positions. Those types of opportunities are essential to giving people work experience and get them participating in the labor pool. However, if a rigidly-held wage floor is in place, employers will resort to more experienced workers to fill those positions to justify paying the higher wage or do away with those positions entirely.

Bowen also could not tell me what enforcement mechanisms would be in place, including what kind of audit process and how much it would cost. Nor would Bowen say if the contractor would be responsible for the subcontractor, and who would be responsible for fines (if any) that are imposed for non-compliance.

Milwaukee County Executive Chris Abele expressed some concerns to me about the proposal. Abele’s office hasn’t yet seen the proposal, either. He said he was open-minded about the proposal. However, he said that given the likely small number of people it will affect, if it would make more sense to take a more targeted approach. He was curious to see if peer-reviewed research would support Bowen’s proposal.

Abele also said that he would look at any proposal to see if it can even be implemented within the county budget. That’s an important question, because the one thing we do know about Bowen’s proposed ordinance is that it will raise costs for county services. That will be in direct contradiction to Abele’s oft-repeated goal of providing better services for less cost to the taxpayers.

By raising the floor for wages for employees of businesses that contract with the county, those contractors will need to increase what they charge. To Bowen and unions that support these kinds of “living wage” ordinances, that may be a feature and not a bug. By raising the costs for outside contracting, the financial difference between using the private sector for county services and using government union labor for those services would be smaller, reducing the incentive for contracting with private companies.

Bowen recently mentioned on Up Front with Mike Gousha that the types of workers that would be affected by such an ordinance would be janitorial and security service employees. These are two services that were recently contracted out to private firms by Milwaukee County after much controversy and opposition from public employee unions.

Unions may be the real winners if a “living wage” ordinance passes, but the real losers would be Milwaukee County’s taxpayers. Either services in Milwaukee County will decline to compensate for the increased costs or else taxes will rise to pay for them. Given the county board’s past behavior, they’ll be just fine with higher taxes if it protects public employee unions from competition.

In his email response to my questions, Bowen did say, “I hope the MacIver Institute is interested in stopping the growth of poverty in Milwaukee like I am.” Bowen’s policy won’t stop the growth of poverty in Milwaukee County, but it will make the taxpayers poorer.