The living wage ordinances that have passed or are being considered throughout the country are one type of minimum wage law. Several such laws have been in existence in the United at various levels of government since 1912. In assessing the viability of living wage proposals, it will be useful to consider here the experiences with this range of existing minimum wage laws.

    The most familiar type of minimum wage law is one with near-universal coverage, that is, one applying to virtually all workers in the country, state, or municipality depending on the government body establishing the law. [1] Such laws are obviously much broader in coverage than most of the living wage ordinances that often proposed, which apply only to workers employed by firms holding government contracts.

    The first statewide minimum wage law was passed in Massachusetts in 1912. Over the next decade, sixteen states and the District of Columbia followed with similar laws. The constitutionality of minimum wage legislation was challenged almost immediately, and in the U.S. Supreme Court declared the District of Columibia's law unconstitutional. However, the Court reconsidered the issue several times subsequently, reversed itself in 1937, setting the stage for the national minimum-wage regulations enacted as part of fair Labor Standards Act Of 1938. This law, as amended, forms the basis for federal minimum wage legislation today. The initial minimum set by the Fair Standards Act was 25 cents an hour.

    The primary argument the early supporters gave for establishing minimum wage laws, identical to that of living wage proponents today, was simple: people working at full-time jobs should be able to provide a decent life for themselves and their families. Indeed, as Lawrence Glickman documents in his illuminating study, A Living Wage: American Workers and the Making of Consumer Society, the movement for minimum wage legislation itself grew out of the living wage movement that began in the United States after the 1877 national railroad strike. The early U.S. living wage movement had, in turn, followed similar developments that began in British labor struggles in the early 1870s.

    Glickman explains that considerable ambiguity existed from the beginning in defining what exactly constituted a "living wage." But the guiding principle was clear: "Although proponents differed over the cash value of a living wage, the phrase became in the [post Civil War] years what the term "full fruits of labor" was to the antebellum era, namely, shorthand for economic justice." [2]

     Religious groups were strong supporters of the living wage movement from its inception. One of the early works written in behalf of minimum wage legislation was a 1906 book by Monsignor John A. Ryan titled A Living Wage: Its Ethical and Economic Aspects. More broadly, as Sar Levitan and Richard Belous write in More Than Subsistence, "A 'social gospel' was taken up by several religious leaders who saw the abuses of industrialization as a sharp contradiction with moral teachings, and the first American minimum wage campaigns took on elements of a religious revival. " [3]

        With the coming of the Depression and New Deal in the 1930s, supporters advanced another argument for the minimum wage: that it would help boost workers' buying power and thus stimulate overall demand for goods and services in the economy. This point was explicitly recognized, for example, in the debate over the Fair Labor Standards Act. Since the 1930s, varians on the same two points- that the minimum wage provides a modicum of fairness to low-wage workers and that it benefits the economy generally by boosting overall demand- have been the central arrients in behalf of national minimum wage laws.

         The national Davis-Bacon law and the "little Davis-Bacons" at the state level are the best-known minimum wage laws with more narrow coverage. These established "prevailing wage" standards for construction as working under government contracts. The 1931 federal prevailing wage law was sponsored by Republican senator James J. Davis from Pennsylvania, a former secretary of labor, and Rep. Robert L. Bacon, Republican banker from New York, and was signed into law that year by Herbert Hoover. Seven states ceded the federal government in creating a prevailing wage minimum for government construction projects. The first state law was passed in 1891 in Kansas. Overall, forty-two states at one time had prevailing wage standards- "little Davis-Bacon" laws- in place.
    The main motivation for the Davis-Bacon laws, as with the minimum wage laws, was to ensure that work could earn a livelihood from a full-time job. But supporters of these laws were also concerned about quality of work performed by contractors who bid on government projects. They wanted to discourage such aggressively low bids, since firms would often unqualified workers to do the work.

    But what is a "prevailing" wage? In 1935, Secretary of Labor Frances Perkins defined the prevailing wage as that paid to the majority of workers in an area. If there was no single wage that a majority of workers earned, then the "modal" wage- the wage most frequently earned by the workers in the area- would prevail as long as at least 30 percent of workers earned that wage. The prevailing wage was set as the average wage in the area if no given wage rate was paid to at least 30 percent of all workers. In practice, the "prevailing" wage has generally been the rate paid to union workers in an area. This has led both to a relatively high wage scale in government construction jobs and to a legitimization of the role of unions in the building trades.

There are two other federal laws whose terms are similar to those of Davis-Bacon. The Walsh-Healey Act, implemented in 1936, requires firms that hold supply contracts with the federal government to pay their employees prevailing wages. The McNamara-O'Hara Act, or the Federal Service Contract Act, which became law in 1965, requires that certain classes of workers (primarily blue-collar) on federal service contracts be paid the prevailing wage of that locality. [4] In 1976, the act was expanded to cover all categories of workers on federal service contracts except executive, administrative, and professional workers. The government's motivation in agreeing to pay the private sector's prevailing wage to its suppliers and service contractors through these laws was to prevent the government orders of supplies and services from affecting private sector wage scales.

While the Davis-Bacon Act and its statewide equivalents have had substantial impact, the other two prevailing wage mandates have been less significant. In the case of the Walsh-Healey Act, a 1963 court ruling declared that all wage determinations under the act were subject to court challenge and the Department of Labor has not pursued enforcement of the act since that time. The Service Contract Act is still enforced, although several industry and employer groups have succeeded in winning exemptions. While there are no official records as to how many workers it covers, the AFL-CIO estimates coverage at 600,000 workers as of 1995.

Most evidence suggests that minimum wage laws with near-universal coverage are successful at providing better wages to the working poor. For example, in examining who received raises from the 1996-97 two-stage increase in the minimum wage from $4.25 to $5.15, Jared Bernstein of the Economic Policy Institute found the following:

1.Close to 10 million workers- 8.9 percent all people with jobs- benefit from the full increase to $5.15;

2. These workers are mostly female (58 percent) and adult (71percent);

3. Nearly half of the affected workers (58 percent) work full time, while another 33 percent work between 20 and 34 hours per week;

4. The increase primarily benefits low-income families -57 percent of the gains from the increase go to the poorest 40 percent of working families. [5]

The minimum, wage, in short, has proven effective at getting benefits to their intended recipients. Despite this, the minimum wage has had only limited, and diminishing, impact in addressing the problem of low-wage poverty. The reason is simple: the real buying power of the minimum wage (after adjusting for inflation) has fallen substantially over the past 30 years.

Even after the October 1997 increase to $5.15, of the minimum wag still provides a full-time worker with 9 percent less income than that needed just to maintain a family of three at the poverty line and 37 per less income than necessary to support a family of our at the Poverty line. [6] We can see this more clearly through considering figure 2.1.

Figure 2.1

The upper panel of figure 2.1 shows the real value for the minimum wage, expressed in constant 1998 dollars. We see that the minimum wage rose through the early 1960s and peaked in 1968 at $7.49. Since then, the minimum wage has been falling. It declined most sharply through the 1980s. Even after the September 1997 increase to $5.15, the inflation-adjusted value of the minimum wage was still 31 percent below the 1968 peak.

This steep decline in the real value of the minimum wage has meant that the minimum wage has been less and less effective as a tool for preventing poverty even among low-wage workers with full-time jobs. We see this in the lower panel of figure 2.1, which plots values for the minimum wage as a percentage of the official poverty threshold for a three-person family. As the table shows, in 1960, a full-time worker earning the minimum wage would earn about 86 percent of the poverty-threshold income for a family of three. The ratio then peaks in 1968 at 117 percent. After the September 1997 increase to a $5.15 minimum, a full time worker at that pay rate would still earn only 8o percent of the poverty-threshold living standard for a family of three.

Despite the inadequacy of the national minimum wage rate as an anti-poverty tool, the most severe critics of minimum wages actually contend that its effects are too Strong, not too weak. The critics believe that any government-mandated minimum higher than the market-established wage will reduce employment opportunities for workers. In particular, those most likely to suffer employment losses through the minimum wage laws will be the less-skilled, low-wage job seekers. As such, minimum wage laws only serve to harm the very people they are intended to help.

It is important to distinguish here between employment loss and changes in the unemployment rate. Employment losses due to the minimum wage would mean that workers are laid off because their employers are unwilling to pay them the mandated minimum and they are not hired elsewhere. This will also bring an increase in the unemployment rate, which measures the proportion of workers actively seeking jobs who are unable to obtain them. However, the unemployment rate can also rise because low-income people who are out of the labor market might begin seeking jobs after the minimum wage has risen. Increases in the unemployment rate that occur for this reason should not, however, be regarded as a negative consequence of the minimum wage.

       Keeping this in mind, it is nevertheless useful to examine the relationship between the minimum wage and the unemployment rate, since the unemployment rate is the standard, if rough, indicator of overall labor market conditions.

       Does the minimum wage lead to employment losses and/or higher unemployment? We consider two kinds of evidence: first, the experience in the United States since 1960 for the economy as a whole in the minimum wage -unemployment relationship; and second, more micro-focused analyses of patterns after minimum wage changes at both the state and national level.

The U.S. Economy since 1960

Figure 2.2 examines the relationship between the declining minimum wage over time and the unemployment rate. Considering first the upper panel of the figure, we see both the unemployment rate and the minimum wage rate plotted over the time period 1960-98. It is clear that the unemployment rate does not fluctuate in the same way as the minimum wage. Indeed, if anything, the unemployment rate tends to rise throughout the 1970s and 1980s as the minimum wage falls.

     This relationship becomes more clear in the lower panel of figure 2.2, in which the minimum wage and unemployment are plotted against each other. As we see from the very wide dispersion of the scatter points, there does not seem to be any close relationship between the minimum wage and unemployment. This observation is confirmed in examining the trend line, which shows the average movement in the unemployment / minimum wage relationship over our time period. We see that the trend line is actually sloping downward. This means that, if anything, the unemployment rate goes up when the minimum wage goes down -a result opposite to the view that a rising minimum wage will bring more unemployment. However, this observed downward trend is actually not a reliable observation, because the scatter points in the figure are so widely dispersed. When this happens, we cannot trust an average figure. In similar fashion, we cannot average the 1998 home run totals for Mark McGwire (70 home runs) and his St. Louis Cardinals teammate Willie McGee (3 home runs) and use that average to accurately describe the contributions for either McGwire or McGee. The most reliable thing we can say from such a wide array of scatter points is that there appears to be no relationship between unemployment and the minimum wage are in this time period.

Moreover, observing this pattern over time between the movements of the minimum wage and the unemployment rate does not tell us anything about whether the unemployment rate is falling as a result of minimum wage increases, or whether there is any causal relationship at all between the two trends. But we do see that a higher minimum wage is at least consistent with less unemployment rather than necessarily more unemployment.

In terms of causality, one plausible explanation for what we observe in figure 2.2 is that even if a higher minimum wage did produce some unemployment if everything else in the economy were held constant, in fact, in the real world, everything else is not held constant. Other influences, such as investors, consumers, and the government demanding more goods and services could lead firms to hire more workers even if their wages are higher. Correspondingly, when demand is lower, firms would want to hire fewer workers, even if the wage at which they could hire is also lower. Such situations would therefore entail a higher minimum wage along with falling unemployment, and a lower minimum wage along with higher unemployment. Moreover, it is also true that Congress is more willing to raise the minimum wage when unemployment is low and wages may be rising in any case because of the tight labor market conditions. Overall then, when demand for goods and services is high, the corresponding increase in demand for workers will dominate over increases in the minimum wage in determining overall employment opportunities.

This explanation for the trend we observe is certainly consistent with the experience following the September 1997 increase in the minimum wage to $5.15 an hour amid an overall unemployment rate below 5 percent. For example, an October 27, 1997, front-page story in theWall Street Journal describes the impact of the minimum wage increase on fast-food restaurants, where resistance to the raise had been intense. Titled "Chicken Feed: Minimum Wage is Up, But a Fast-Food Chain Notices Little Impact," the story reported that "the minimum wage increase has turned into one of the nonevents of 1997, thanks mostly to the economy's continuing strength. Low-wage Americans- nearly 10 million of them by some estimates- got a raise. But amid the current prosperity, hardly anybody noticed." One fast-food employer, David Rosenstein, who runs thirteen Popeyes Chicken & Biscuits restaurants in the Washington, D.C., area, had been a staunch opponent of the raise but more recently decided that "The economy is good. Business is good.... I think we saw it in more dire terms than it worked out."

The evidence we have considered on the minimum wage and unemployment considers unemployment for the labor market as a whole. In fact, as of 1997, only 7.7 percent of the workforce earns the minimum wage or below. So perhaps we can observe the positive relationship -unemployment going up when the minimum wage goes up, and vice versa- for the segment of the labor market that actually gets minimum wage jobs. To consider this possibility, figure 2.3 looks again at the relationship between the minimum wage rate and unemployment, except that instead of showing overall unemployment data, it reports the unemployment rate for teenagers only.

It is important to emphasize in considering the teenage unemployment- minimum wage relationship that we are by no means suggesting that only teenagers, or even mainly teenagers, get paid minimum wages. Quite the contrary: as we reported above, 71 percent of the people receiving raises through the 1996-97 minimum wage increase were not teenagers. Nevertheless, 50 percent of all teenagers who work earn the minimum wage, while only 6.8 percent of working adults have minimum wage jobs. Therefore, by considering the relationship between teenage unemployment and the minimum wage, we get a closer look at how changes in the minimum wage affect employment opportunities.

The fall in the real value of the minimum wage since 1968 is all the more remarkable considering that, as of 1998, the productivity of the U.S. economy -our ability to produce goods and services with a given number of people employed and given dollar value of machines- is 50 percent higher than it was in 1968. Consider a simple exercise, the results of which are reported in figure 2.4. Suppose that the minimum wage had not been dropping all these years since 1968, but rather had been rising at a rate exactly equal to the economy's rate of productivity increase. This would mean that the minimum wage would go up only when the economy could produce more goods and services in an hour's time than it could the previous year. In figure 2-4, we see that if this were the case, the minimum wage in 1998 would have been $ 11.21, more than double the actual $5.15 rate in 1998. This is a remarkable result. The fact that the minimum wage would be $11.21 in 1998 if low-wage workers had received only an equal share of the economy's productivity gains since 1968 -no more and no less- makes certain that the productive potential exists in the economy of 1998 to sustain a significantly higher minimum wage.

Figure 2.4