HomeMy WebLinkAboutReportTHE IMPACT OF A LIVING WAGE
ORDINANCE ON THE CITY OF MIAMI
by Bruce Nissen and Theodore Carrasco
Florida International University
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Acknowledgements:
We would like to acknowledge the financial assistance of the Dade Foundation and the
Community Coalition for a Living Wage, which made this research possible. We stress,
however, that neither of these institutions bears any responsibility for the analysis or conclusions
contained herein, and neither has influenced its contents or methodology.
Contact information:
Bruce Nissen, Director of Research
Center for Labor Research and Studies
Florida International University
University Park
Miami, FL 33199
nissenb@fiu.edu
305-348-2616
Theodore Carrasco
Florida International University
University Park
Miami, FL 33199
ppp78@msn.com
305-609-3391
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THE IMPACT OF A LIVING WAGE ORDINANCE ON THE
CITY OF MIAMI
by Bruce Nissen and Theodore Carrasco
Florida International University
EXECUTIVE SUMMARY
L Proposed Living Wage Ordinance for the City of Miami
A coalition of local organizations and individuals has urged the city of Miami to pass a living
wage ordinance to raise the wages of the lowest paid workers on the city's payroll and on the
payrolls of the city's contractors. Miami -Dade County, Miami Beach, Broward County, and
others have passed such ordinances. A living wage ordinance ordinarily requires that wages be
paid at or above the poverty line for a family of four, and that health care coverage (or its
equivalent in monetary payment) be provided.
This study assumes that a city ordinance would closely parallel the Miami -Dade County
ordinance. The proposed ordin • ice would cover (1) all employees of the city, and (2) employees
of locally based service contractors conducting city business through a contract with the city.
The required pay levels would be $9.44 per hour if health care coverage is provided, and $10.81
per hour if it is not. This amount would be adjusted yearly for inflation. We use these pay levels
as "baseline" hourly wage figures, and calculate costs for a few intermediate levels of $9.25,
$9.50, $10.00, $10.50 and $10.59 per hour.
II. Previous Research on Living Wage Ordinances
Research on what has occurred elsewhere after implementation of living wage ordinances is
briefly reviewed. Two studies of Baltimore, one of the cities of Boston, New Haven, and
Hartford, and one of a number of California cities are reviewed. All deliver positive
assessments: costs to the city rise very little or sometimes even decline, poverty is reduced,
"disemployment" (increased unemployment) impacts are insignificant, etc. No major negative
impacts have been found (as opposed to predicted), to the best knowledge of the authors.
III. Likely Costs to the City of Miami of a Living Wage Ordinance
Analysis reveals that 43 city contracts, costing a little over $6 million, would be covered by the
proposed ordinance Using a methodology relying on govemment statistics for Miami, we
estimate the number, types, and pay levels of city contractor employees who would win wage
increases under a living wage ordinance. We find that nearly 58 F lEs of city contractors would
win wage increases, depending on the pay level chosen. These workers are in a wide variety of
industries. Depending on the pay level chosen, final increased payroll costs to these
contractors range from $388,632.64 (at $9.44/hr.) to $473,778.89 (at $10.81/hr.) per year.
The following table gives details:
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Total costs to contractors at various living wage amounts
Living Wage
Wage Increase
FICA Increase
Total
$9.25/hr.
$344,932.56
$26,387.34
$371,319.90
$9.44/hr.
$361,014.99
$27,617.65
$388,632.64
$9.50/hr.
$365,022.94
$27,924.26
$392,947.20
$10.00/hr.
$386,485.88
$29,566.17
$416,052.05
$10.50/hr.
$414,106.47
$31,679.15
$445,785.62
$10.59/hr.
$418,304.02
$31,867.06
$450,171.08
$10.81 /hr.
$440,110.44
$33,668.45
$473,778.89
Analysis of city payrolls reveals that between 458 city employees (265 part-time and 193 full-
time) and 524 (286 part-time and 238 full-time) would receive pay increases,,depending on
the pay level chosen. Additional payroll costs to the city range from $1.91 million to $3.26
million, depending on the pay level chosen. The following table gives details.
Total city employee pay increase costs
Living Wage
Part-time
Full-time
Total
$9.25/hr.
$1,157,410.08
$584,701.41
$1,742,111.49
$9.44/hr.
$1,249,994.90
$664,703.15
$1,914,698.05
$9.50/hr.
$1,279,232.21
$690,744.12
$1,969,976.33
$10.00/hr.
$1,522,876.45
$912,881.39
$2,435,757.84
$10.50/hr.
$1,780,015.59
$1,155,448.16
$2,935,463.75
$10.59/hr.
$1,827,158.87
$1,201,193.38
$3,028,352.25
$10.81 /hr.
$1,942,770.23
$1,313,545.94
$3,256,316.17
Combining the last two tables, we arrive at total additional payroll costs to all employers, should
a living wage ordinance be passed and implemented.
Total additional payroll costs at differing living wage
rates
Living Wage
Contracts
Employees
Total
$9.25/hr.
$371,315.89
$1,742,111.49
$2,113,427.38
$9.44/hr.
$388,632.64
$1,914,698.05
$2,303,330.69
$9.50/hr.
$392,190.73
$1,969,976.33
$2,362,167.06
$10.00/hr.
$423,098.07
$2,435,757.84
$2,858,855.91
$10.50/hr.
$444,597.50
$2,935,463.75
$3,380,061.25
$3,476,782.07
$10.59/hr.
$448,429.82
$3,028,352.25
$10.81/hr.
$473,778.89
$3,256,316.17
$3,730,095.06
IV. Analysis and Conclusions
There are two likely sources of cost reductions from the above figures as well as two likely
sources of cost increases. The potential cost reductions come from (1) an "efficiency wage"
effect, whereby efficiency will increase at the higher wage through reductions in employee
tumover, absenteeism, tardiness, and the like; and (2) contractors not passing through to the
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county the entire additional labor costs. Both of these will likely reduce the final cost, but we do
not put a magnitude on these factors in this study.
The potential increased costs come from (1) monitoring costs for the city, which will use city
personnel to implement and monitor the ordinance, and (2) "ripple effect" costs, to the extent
that employers grant wage increases beyond those required by the ordinance itself. Again, we do
not attempt to quantify these additional costs in this study, but we emphasize that both of these
factors are under the city's control and are not mandatory under an ordinance. If the city chooses
to handle both issues wisely, additional costs can be greatly minimized.
In the estimation of the authors, the additional potential savings and the additional potential costs
will largely cancel each other out, so we stick by the figures in the final table above as the most
likely costs of a living wage ordinance. These costs range from a little under 7/10 of one
percent of the city's personnel budget to slightly over 1.1% of that budget. Where the final
cost would fall depends on how many of the employees winning pay increases already have
health insurance coverage — the more that do, the lower the cost and the less that do, the higher
the cost. Our own estimate is that the final cost will be approximately $3 million per year, a
little under 1% o of the city's present personnel budget.
Whether the benefits of a living wage ordinance justify this small cost is a political decision for
the Miami City Commissioners to make. In our estimation, the well known anti -poverty benefits
and the small cost make adoption of a living wage ordinance a very attractive option.
5
IMPACT OF A LIVING WAGE ORDINANCE ON THE CITY OF
MIAMI
by Bruce Nissen and Theodore Carrasco
Florida International University
INTRODUCTION
A coalition of local organizations and individuals has urged the city of Miami to pass a living wage
ordinance to raise the wages of the lowest paid workers on the payroll of the city and its contractors.
Miami -Dade County, the city of Miami Beach, Broward County, and several other municipalities
across the state of Florida have already passed such ordinances. A living wage ordinance ordinarily
requires that wages be paid at or above the poverty line for a family of four, and that health care
coverage (or its equivalent in monetary payment) be provided.
To date, despite expressed interest from the city's mayor and several city commissioners, no
action has been taken on this request. One important piece of information that public officials have
asked for is what the likely cost of such an ordinance would be. One of the authors of this report
was approached with a request to undertake a study of the costs and benefits of passage of such an
ordinance. Thanks to a generous grant from the Dade Foundation (administering a local grant
program for the Knight Foundation) and a supplemental grant from the Community Coalition for a
Living Wage (CCLW), we were able to undertake such a study.* The following is a brief study of
the likely impact of a living wage ordinance on the city of Miami. Emphasis has been given to the
costs involved, although city officials should bear in mind the benefits such an ordinance is also
likely to bring the city and its inhabitants.
• We thank the Dade Foundation and the CCLW for their financial support. However, neither bears any responsibility
for the analysis or the results contained in this report. Likewise, neither was given any influence over, or knowledge of,
the methodology employed in the report or in the conclusions reached.
The study is based on the assumption that a city ordinance would closely parallel the
ordinance already in place since 1999 for Miami -Dade County. Thus, we assume that the ordinance
would cover (1) all employees of the city, and (2) employees of locally based service contractors
conducting city business through a contract with the city. We assume that required hourly pay
levels will be comparable to those of the county's ordinance, which are adjusted yearly to keep up
with increases in the cost of living. Currently the county's required pay levels are $9.25 per hour if
health care coverage is provided, and $10.59 per hour if it is not. We calculate these pay levels,
however, we use $9.44 and $10.81 per hour as "baseline" hourly wage figures while estimating
costs for a few intermediate levels of $9.50, $10.00, and $10.50 per hour.
THEORETICAL ARGUMENTS ABOUT A LIVING WAGE
Arguments concerning living wage ordinances are similar to those concerning minimum wage
legislation. Proponents argue that workers at the lowest wages cannot earn an adequate income
unless the government sets a "wage floor"; the wealth of the country is being more unevenly and
inequitably divided; that "living wages" keep families intact and are supportive of strong families;
workers gain greater self sufficiency; that the government gains because of lowered need for social
services; communities gain through increased consumer spending in the community; and that even
employers gain through higher morale and efficiency with lower turnover of employees.
Opponents tend to rely on the ideological belief that the market should be the ultimate
determinant of economic distribution; they see any deviation from a strictly "free market" approach
as creating distortions and inefficiencies. Beyond purely ideological arguments, they argue that a
living wage ordinance will cost the government too much; that it will likely lead to unemployment;
administrative costs will be huge; competition for city contracts will decrease; and that the "wrong
signal" will be sent to the business community, thus discouraging investment in the area.
2
This report will not enter into the ideological debate, but will confine itself to the likely
empirical effects of passage of a living wage ordinance. Much of the previous research on living
wage ordinances gives some indication of the likely impacts.
PREVIOUS RESEARCH ON LIVING WAGE ORDINANCES
To date over 110 municipalities and counties and other public entities in the United States have
passed living wage ordinances, and a fair amount of research has been done on living wage impacts.
They break down into two types: prospective studies, such as the present one, that predict the likely
impact if a living wage ordinance is passed, and retrospective studies, which look back at the actual
impact after passage.
Both types of studies are valuable, but of course the retrospective ones are probably the most
valuable because they tell you what actually happened, as opposed to future projections of what will
happen. Predictions of the future inevitably rely on assumptions, and are therefore less likely to be
entirely reliable.
This study cannot review all the studies conducted on living wage ordinances. The
interested reader is referred to several web sites that contain a large number of them.' Here we will
confine our attention to the main "after -the -fact" retrospective studies, because they are the most
reliable and most important.
Two studies looked at the impact of the Baltimore living wage ordinance, passed in 1994.
The first study, conducted in 1996, examined the impact after one year in operation (Weisbrot and
Sforza-Roderick, 1996). The study found evidence supporting nearly all of the claims of
Three sources giving listings of such studies (two with a favorable view toward living wage ordinances and one with
an extremely negative view) are the following: www.umass.edu/peri/resources/livingwages.htm,
www.epinet.org/content.cfm/issueguides livingwage livingwage, and www.epionline.org/lwjublications.cfm.
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proponents, and was unable to find any of the negative consequences predicted by opponents. Main
findings were:
* The real cost of city contracts actually decreased after the ordinance went into effect. For the
average contract (weighted by its share in the sample), this decline was statistically significant.
* Of companies interviewed that held contracts before and after enactment of the law, none
reported reducing staffing levels in response to the higher wage requirements.
* The cost to taxpayers of compliance has been minimal, with the city allocating about 17 cents
per person annually for this purpose.
* The average number of bids per contract declined from 1994 to 1995, but this decline was not
statistically significant, nor did it affect the competitiveness of the bidding process as
manifested in actual contract costs.
* There is no evidence that businesses have responded negatively to the passage of the
ordinance. In fact, the value of business investment in the City of Baltimore actually increased
substantially in the year after passage of the law.
The second study examined the impact after two years of operation (Niedt, Ruiters, Wise,
and Schoenberger, 1999). The overall conclusions were similar to those of the previous study:
* The living wage ordinance has had positive effects on a relatively small number of workers in
Baltimore without significant financial cost to the City.
* Due to the prevalence of part-time and seasonal work, however, living wages do not always
amount to living incomes. Greater consideration must be given to increasing and stabilizing
hours worked.
* The small financial impact on the city suggests that living wages could be paid more generally
in the private and non-profit sectors with a relatively low impact on costs and competitiveness.
* Evidence suggests that higher wages and hours improve the stability and reliability of the
workforce.
* Non-compliance in terms of paying the living wage and/or providing adequate payroll
documentation remains a significant problem, affecting the impact of the living wage ordinance
and our ability to analyze that impact.
* The benefits of the living wage may be threatened by the effects of welfare reform.
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These two studies indicate that the more ideological arguments against a living wage
ordinance are not well founded. Another study examining the impact of living wage ordinances on
Boston, New Haven, and Hartford found that the cost to the city of covered contracts actually fell in
the vast majority of cases (Pollin, 2003). This does not, of course, mean that the living wage
requirement caused the decrease in costs (although that is theoretically possible, through "efficiency
wage" effects making the higher paid workforce more efficient), but it does indicate that any
increased costs were so small that they were outweighed by other factors cansing overall costs to
decrease.
A retrospective study of a number of California cities with living wage ordinances found
that they were effective in substantially raising the wages of covered workers, and had an impact on
reducing urban poverty (Neumark, 2002). The author, David Neumark, is a well known opponent
of minimum wage legislation, so his findings surprised him. Neumark found a small insignificant
"disemployment" effect, meaning that a slight decline in jobs occurred. He had expected this
disemployment impact to be much smaller than the insignificant amount he discovered.
Thus far the retrospective studies have been overwhelmingly positive. Despite this positive
evidence, a prudent public official will still want to know the likely cost if a local living wage
ordinance is passed. In this study, we will use very conservative assumptions so that any errors in
prediction will be on the side of overstating costs, not understating them. The actual cost to the city
is likely to be less than our final projection, but we feel it is safer to err on the side of caution.
LIKELY COSTS OF A LIVING WAGE ORDINANCE
In assessing the effects of implementing a living wage ordinance, one must ask the following
questions:
* Who benefits from the new wage standard and how much?
* How much will a living wage cost city of Miami?
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The first step is to identify the benefactors. The primary benefactors would of course be
individuals earning less than the designated "living wage" either as municipal employees or as
workers for contractors used by the city in service industries (janitorial, landscaping, security guard,
etc). The families of these individuals would also benefit. The city and its citizens may benefit
through a decrease in the level of poverty and all the attendant ills that come with poverty (crime,
welfare dependence, etc.) Taxpayers may also benefit from savings through not having to provide
health care and public assistance to those now able to support themselves. And even the contractors
employing these individuals may benefit through a more reliable and motivated workforce:
absenteeism, tardiness, labor turnover, and the like decrease when rates "above the going rate" are
paid.
Assuming the ordinance was implemented, to whom would the burden fall? For the
increased costs of higher wages and benefits for direct city employees, the burden obviously falls on
the city's budget. For the private contractors, the limited evidence we have to date indicates that
they are likely to pass some of any increased costs on to the city, but not all. Those not passed on
are handled through internal adjustments within the firm. However, for the purposes of this study
we will make a `worst case" assumption for the city: that all additional costs to the contractors will
be passed through to the city. We will also, until the end of the analysis, ignore any "efficiency
wage" savings, although available evidence indicates that they do exist. In other words, we rely on
pessimistic assumptions, to make certain we are not underestimating costs to the city.
The remainder of this study will calculate costs to the city, should it pass and implement a
living wage ordinance with the "living wage" set at levels between $9.44 per hour and $10.81 per
hour. First we will consider the increased cost of paying employees of service contractors with the
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city a living wage. Then we will consider increased direct costs to the city's payroll from paying all
of its employees a living wage.
City Contract Workers
To determine increased cost of city contracts, we filtered all services contracts from a list
detailing every open city contract in the calendar year 2004, which was provided by the City of
Miami Purchasing Department. Of the 306 open contracts, the authors sorted each for service -only
contracts with contractors located in Miami -Dade County or neighboring counties. This ultimately
left 43 contracts.
Many contracts were for time periods other than one year in length. In these cases, the costs
were annualized the following two ways:
* In the case where contracts were awarded in years, the total amount awarded was divided by
the number of years the contract was to be active.
o contract amount / contract years = annualized cost
* Where contracts were awarded for specific months, the total amount awarded was divided by
the number of months and multiplied by 12.
o (contract amount / contract months) (12) = annualized cost
Overall, the city's total cost for the 43 service contracts is $6,020,004.34.
From these 43 contracts, Standard Industrial Classification (SIC) and North American
Industry Classification System (NAICS) codes were assigned based on the contract descriptions to
specify which industry the contract serves as listed by the U.S. Census.
(http://www.census.gov/epcd/www/econ97.html) Both SIC and NAICS codes needed to be used
since the Census began using NAICS codes in 1997 to classify industries. The Census, however,
provides a bridge to link the SIC codes to NAICS.
(http://www.census.gov/epcd/www/naicstab.htm) To ensure the assigned codes were correct for
every contract, each was verified with the vendors' registered codes as listed in the Florida Business
7
Directory (2004) and the Dun and Bradstreet Regional Business Directory for South Florida (2004).
As a result, the following SIC/NAICS codes were used:
* 1711/235110 — Plumbing, Heating, and Air -Conditioning Contractors
* 1743/235430 — Tile, Marble, Terrazzo, and Mosaic Contractors
* 1795/235940 — Wrecking and Demolition Contractors
* 1796/235950 — Building Equipment and Other Machinery Installation Contractors
* 1799/235990 — All Other Special Trade Contractors
* 2951/324121 — Asphalt Paving Mixture and Block Manufacturing
* 7534/326212 — Tire Retreading
* 4151/485410 — School and Employee Bus Transportation
* 4499/488330 — Navigational Services to Shipping
* 7549/488410 — Motor Vehicle Towing
* 4215/492100 — Couriers
* 8734/541380 — Testing Laboratories
* 7363/561320 — Temporary Help Services
* 7381/561613 — Armored Car Services
* 7342/561710 — Exterminating and Pest Control Services
* 7349/561720 — Janitorial Services
* 0782/561730 — Landscaping Services
* 7217/561740 — Carpet and Upholstery Cleaning Services
* 4212/562111 — Solid Waste Collection
* 4953/562211 — Hazardous Waste Treatment and Disposal
* 1799/562910 — Remediation Services
* 7999/711310 — Promoters of Performing Arts, Sports, and Similar Events with Facilities
* 7537/811113 — Automotive Transmission Repair
* 7539/811118 — Other Automotive Mechanical and Electrical Repair and Maintenance
* 7532/811121 — Automotive Body, Paint, and Interior Repair and Maintenance
* 7536/811122 — Automotive Glass Replacement Shops
* 7534/811198 — All Other Automotive Repair and Maintenance
* 7629/811212 — Computer and Office Machine Repair and Maintenance
Aside from using the Census to classify industries, data reporting industry total receipts,
salaries, number of establishments, and employees (part-time and full-time) was collected from the
U.S. Economic Census website. (http://www.census.gov/epcd/ec97/us/US000.HTM) For most
industries, the data was extracted at the Miami PMSA level given that it provides the most accurate
description of employment and industry activity as possible. In some cases, data was not reported
at this level so state or national figures were used instead2.
2 The following industries were not available at the Miami PMSA level:
8
To determine an approximate total of employment per $ 100,000 in receipts, the following
equation was used:
#employees _ x
receipts 100000
The number of employees was multiplied by 100,000 and divided by the total receipts. Aside from
generating the industry's receipts per 100,000 employee totals, we converted the total employees
earning less than the proposed living wage into full-time equivalent (FTE) totals using the equation
below:
(mean hours worked / 40) (# of employees) = FTE
FTE is equal to one person working full-time for an entire year. The mean hours were determined
by taking the average number of hours reported by the Integrated Public Use Microdata Series
RUMS) data for each industry and then divided by 40. This amount, multiplied by the total
employees earning below the living wage levels, provides the 1~ 1'E figures for each industry. The
purpose of converting employee totals to FTE is simply for comparison purposes when dealing with
part-time and full-time employee figures.
As noted, the F 1E equation relies on data from IPUMS. IPUMS data consists of samples
from U.S. Census data that focuses primarily on individual and household information. The 2000
5% Census PUMS sample was used to determine the hourly wage for employees of each industry.
The purpose of using the industry variable is to match those respondents that worked in industries
similar to the open contracts being examined in Miami. IPUMS does not provide an hourly wage
Florida — 235110, 235430, 235950, 235990, 324121
U.S. — 235940, 326212
IPUMS - 561720
Dunn & Bradstreet - 561730
The following variables were selected: (1) Miami/Hialeah Metropolitan Area, (2) if the respondent was in the labor
force the previous year, (3) number of weeks worked, (4) number of hours worked, and (5) wage and salary income.
(http://beta.ipums.org/usa/) State data from IPUMS was needed for industries 3241M and 32621 because there were not
enough respondents available at the municipal level to develop an accurate estimate of the industry in the region.
9
for the workers. To calculate an hourly rate variable, the authors divided the worker's income by
the number of weeks worked and then by the average weekly hours worked as illustrated by the
equation below.
i
income
weeksworked
hoursworked
While the sample does not list NAICS codes to six digits as the Census does, it offers
NAICS codes between two and five digits4. The aim of using IPUMS data is to determine an
average hourly wage and the proportion of workers earning less than the specific amounts. In this
case, the specified living wage standards examined are $9.44 and $10.81 per hour to represent the
upper and lower ends of the pay range with 50-cent intervals between $9.50 and $10.50 in between.
Based on the average wages, one is able then to determine the average increase cost. For
comparison purposes, Table 1 shows the average hourly pay increase those below the living wage
would gain, should an ordinance be passed at that level.
4 The industry codes used as listed by IPUMS are listed by code and industry description:
o 23 - Construction
o 3241M - Misc. Petroleum and Coal Products
o 32621 — Tires
o 485M - Bus Service and Urban Transit
o 488 - Services Incidental to Transportation
o 492 - Couriers and Messengers
o 5413 - Architectural, Engineering and Related Services
o 5613 - Employment Services
o 5616 - Investigation and Security Services
o 56173 - Landscaping Services
o 5617Z - Services to Buildings and Dwellings
o 561M - Other Administrative and Other Support Services
o 562 - Waste Mgmt and Remediation Services
o 711 - Performing Arts and Related Services
o 8111 Z - Automotive Repair and Maintenance
o 8112 - Electronic Equip. Repair and Maintenance
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Table 1
Average hourly pay increases for each industry at differing "living wage" rates
Industry
$9.25/hr.
$9.44/hr.
$9.50/hr.
10/hr.
$10.50/hr.
$10.59/hr
$10.81/hr.
23 - Construction
$2.94
$3.09
$3.12
$3.33
$3.55
$3.57
$3.72
3241M - Misc. Petroleum
and Coal Products
$2.25
$2.44
$2.50
$3.00
$2.07
$2.16
$2.03
32621 -Tires$2.87
$3.06
$3.12
$3.33
$3.40
$3.49
$3.58
485M - Bus Service and
Urban Transit
$2.64
$2.73
$2.69
$2.92
$3.28
$3.31
$3.53
488 - Services Incidental to
Transportation
$2.81
$2.91
$2.96
$3.10
$3.33
$3.36
$3.51
492 - Couriers and
Messengers
$2.72
$2.91
$2.97
$2.92
$3.08
$3.10
$3.24
5413 - Architectural,
Engineering & Services
$2.50
$2.63
$2.69
$2.79
$2.97
$3.01
$3.23
5613 - Employment Services
$3.17
$3.27
$3.33
$3.68
$3.80
$3.77
$3.99
5616-Investitionand
Security Services
$3.03
$3.19
$3.23
$3.51
$3.81
$3.86
$4.06
56173 - Landscaping
Services
$3.39
$3.51
$3.55
$3.88
$4.17
$4.21
$4.40
5617Z - Services to
Buildings and Dwellings
$3.33
$3.52
$3.51
$3.85
$4.24
$4.31
$4.39
561M - Other Administrative
and Other Support Services
$3.17
$3.36
$3.29
$3.43
$3.70
$3.67
$3.89
562 - Waste Mgmt and
Remediation Services
$3.24
$3.43
$3.49
$3.49
$3.56
$3.44
$3.56
711 - Performing Arts and
Related Services
$3.37
$3.31
$3.33
$3.60
$3.90
$3.87
$4.05
8111Z - Automotive Repair
and Maintenance
$2.92
$3.03
$3.06
$3.26
$3.47
$3.53
$3.69
8112 - Electronic Equip.
Repair and Maintenance
$2.97
$3.16
$3.22
$3.13
$2.98
$3.07
$3.29
From the information provided by the tables above, assuming that the labor demand remains
constant, one could estimate the cost of implementing a living wage on the city's service contracts.
The first task was to determine how many FfEs were required to fulfill the services the contracts
demanded. This was estimated by taking the Fib totals from the Census data and applying it to the
following equation:
industryFTErate
100000 - contract cost
= contractFTE
1 1
The contract FTEs were then multiplied by the average hourly wage differences determined using
the IPUMS data to show the hourly cost of raising employees in each industry to the living wage
minimum.
Table 2 shows the increased costs by industry, and total increased costs, at each possible
level of the "living wage". Table 1 was used to determine the costs by multiplying the contract F 1'E
by the average increase. We assumed 2,080 hours per year worked (40 hours per week X 52 weeks
per year). A 7.65% FICA (social security and Medicare tax) was aggregated to determine the final
total cost for vendors to meet the living wage standard for all employees.
Table 2
Living wage costs by industry at differing "living wage" rates
NAICS
$9.25/hr.
$9.44/hr.
$9.50/hr.
$10/hr.
$10.50/hr.
$10.59/hr.
$10.81/hr
235110
$2,705.62
$2,843.66
$2,944.89
$3,064.53
$3,266.99
$3,285.40
$3,423.43
235430
$882.12
$927.13
$960.13
$999.14
$1,065.15
$1,071.15
$1,116.16
235940
$8,432.84
$8,863.08
$9,178.60
$9,551.48
$10,182.51
$10,239.88
$10,670.13
235950
$1,849.83
$1,944.20
$2,013.41
$2,095.21
$2,233.64
$2,246.22
$2,340.60
235990
$329.15
$345.94
8358.26
$372.81
$397.44
$399.68
$416.48
324121
$89.45
$92.88
$95.16
$114.20
$78.79
$82.22
$77.27
326212
$4,022.85
$4,289.16
$4,373.27
$4,667.62
$4,765.74
$4,891.90
$5,018.05
485410
$5,934.92
$6,137.25
$6,047.33
$6,564.38
$7,373.69
$7,441.13
$7,935.71
488330
$1,755.45
$1,817.92
$1,849.15
$1,936.61
$2,080.30
$2,099.04
$2,192.74
488410
$4,265.93
$4,417.74
$4,493.65
$4,706.18
$5,055.35
$5,100.89
$5,328.61
492100
$986.64
$1,055.56
$1,077.33
$1,05920
$1,117.23
$1,124.49
$1,17527
541380
8143,113.3 5
$150,555.25
$153,989.97
$168,873.76
$170,018.67
$172,308.48
$184,902.45
561320
$4,528.53
$4,671.39
$4,757.10
$5,257.10
$5,428.52
$4,299.96
$5,699.95
561613
$61.06
$64.29
$65.09
$70.73
$76.78
$77.79
$81.81
561710
$119.30
$126.11
$125.75
$137.93
$151.90
$154.41
$15728
561720
$60,537.46
$63,991.54
$63,809.74
$69,990.74
$77,080.72
$78,353.28
$79,807.63
561730
$28,444.19
$31,020.70
$28,053.51
$29,237.44
$32,558.40
$33,092.38
$38,886.35
561740
$24,312.75
$24,097.59
$25,460.25
$27,826.98
$29,906.83
$30,193.70
$27,898.69
562111
$9,042.87
$9,784.56
$9,385.18
$9,784.55
$10,554.76
$10,469.18
$10,155.40
562211
$486.07
$514.57
$523.57
$523.57
$534.07
$516.07
$534.07
562910
$1,842.71
$17950.77
$1,984.89
$1,984.89
$2,024.70
$1,956.45
$2,024.70
711310
$15,818.46
$16,090.34
$16,881.15
$17,02323
$17,484.52
$16,948.55
$19,687.57
811113
$5,297.18
$4,762.74
$5,234.30
$5,658.70
$6,13026
$6,083.11
$5,800.17
811118
$1,451.49
$1,506.16
$1,521.08
$1,620.50
$1,724.88
$1,754.71
81,83424
811121
$39,569.37
$41,059.99
$41,466.53
$44,176.76
$47,022.51
$47,835.58
$50,003.76
811122
8849.97
$881.99
$890.72
$948.94
$1,010.07
$1,027.53
$1,074.11
811198
$2,824.52
$2,930.92
$2,959.94
$3,153.40
$3,356.53
$3,414.57
$3,569.34
811212
$1,761.83
$1,889.19
$1,690.76
$1,697.47
$1,916.53
$1,962.07
$1,966.91
12
Table 3 summarizes the total increased costs to contractors at each of the living wage levels
discussed previously. The wage increase column represents the cost for contractors to increase their
workers' wages in order to meet the living wage. Given that the full amount awarded by the city for
service contracts is $6,020,004.34, the payroll increase to meet living wage requirements would be
a 6.46% at $9.44 per hour or 7.87% at $10.81 per hour addition to the city's current contract
expenses. As for the impacts at $9.25, $9.50, $10, $10.50, and $10.59 an hour, the increases are
6.17%, 6.51%, 7.03%, 7.39%, and 7.45% respectively.
Table 3
Total costs to contractors at various living wage amounts
Living Wage
Wage Increase
FICA Increase
Total
$9.25/hr.
$344,932.56
$26,387.34
$371,319.90
$9.44/hr.
$361,014.99
$27,617.65
$388,632.64
$9.50/hr.
$365,022.94
$27,924.26
$392,947.20
$10.00/hr.
$386,485.88
$29,566.17
$416,052.05
$10.50/hr.
$414,106.47
$31,679.15
$445,785.62
$10.59/hr.
$418,304.02
$31,867.06
$450,171.08
$10.81/hr.
$440,110.44
$33,668.45
$473,778.89
City of Miami Employees
A list of every city employee earning less than $12 per hour was collected from the
Department of Employee Relations for the City of Miami. This list was used to assess the cost of
increasing payroll to meet the same living wage levels examined for the city's contractors. The cost
of implementing a living wage for the City's employees equals the sum of the differences between
the living wage standard and each employee's hourly rates. This would determine the city's total
cost on an hourly basis.
To attain a biweekly cost, each employee's living wage difference was multiplied by his/her
scheduled hours. The biweekly total was then multiplied by 26 to determine an annual cost. For
the sake of accuracy, part-time and full-time employees were assessed separately.
13
Overall, there are 317 part-time and 327 full-time employees in the city as of January 2004
who are earning less than $12 per hour. Table 4 shows the total number of employees earning
below the living wage levels being examined. In total, the city had 449 employees earning under
$9.25 per hour, 458 less than $9.44; 459 below $9.50 per hour; 470 under $10 per hour; 508
less than $10.50 per hour; 512 below $10.59 per hour; and 531 under $10.81.
Table 4
Number of city employees earning less than various living wage levels
Living Wage
Part-time
Full-time
$9.25/hr.
265
184
$9.44/hr.
265
193
$9.50/hr.
265
194
$10.00/hr.
265
205
$10.50/hr.
281
227
$10.59/hr.
285
227
$10.81/hr.
286
245
The part-time employees referred to in Table 4 have the following characteristics: the 265
earning less than $10/hr. earn an average of about $6.85 per hour. The 281 and 285 earning
less than $10.50/hr. and $10.59/hr. average $7.03 and $7.08 per hour respectively. Moreover,
the 286 earning less that $10.81/hr. average $7.10/hr. All of the part-time employees work an
average of about 32.9 hours per week. The full-time employees referred to in Table 4 have the
following characteristics: all of them average 40 hours per week, and they earn on average
$7.83/hr., $7.90/hr., $7.91/hr., $8.02/hr., $8.23/hr., $8.23/hr., and $8.52/hr. at each of the
respective "living wage" levels.
Table 5 shows the costs of increasing part-time worker wages to meet the living wage.
Included is an annual cost with the 7.65% FICA increase. At $9.44 per hour, the FICA expense
amounts to $88,829.18, while at $10.81 per hour, it sums to $138,060.31.
14
Table 5
Living wage costs for City of Miami part-time employees
Living Wage
Hourly
Biweekly
Annually
Annual Cost w/FICA
$9.25/hr.
$635.01
$41,352.32
$1,075,160.32
$1,157,410.08
$9.44/hr.
$685.36
$44,660.22
$1,161,165.72
$1,249,994.90
$9.50/hr.
$701.26
$45,704.82
$1,188,325.32
$1,279,232.21
$10.00/hr.
$833.76
$54,409.82
$1,414,655.32
$1,522,876.45
$10.50/hr.
$973.72
$63,596.97
$1,653,521.22
$1,780,015.59
$10.59/hr.
$999.37
$65,281.32
$1,697,314.32
$1,827,158.87
$10.81/hr.
$1,062.26
$69,411.92
$1,804,709.92
$1,942,770.23
Table 6 demonstrates the costs of increasing full-time employee payroll to equal living wage
standards in addition to the 7.65% FICA expense. At $9.44 per hour, the FICA expense amounts to
$47,236.22, while at $10.81 per hour, it sums to $93,345.35.
Table 6
Living wage costs for City of Miami full-time employees
Annual Cost w/FICA
Living Wage
Hourly
Biweekly
AnnilRlly
$9.25/hr.
$261.13
$20,890.40
$543,150.40
$584,701.41
$9.44/hr.
$296.86
$23,748.73
$617,466.93
$664,703.15
$9.50/hr.
$308.49
$24,679.13
$641,657.33
$690,744.12
$10.00/hr.
$407.70
$32,615.72
$848,008.72
$912,881.39
$10.50/hr.
$516.03
$41,282.22
$1,073,337.82
$1,155,448.16
$10.59/hr.
$536.46
$42,916.62
$1,115,832.22
$1,201,193.38
$10.81/hr.
$586.63
$46,930.79
$1,220,200.59
$1,313,545.94
By adding the costs for both part-time and full-time employee, the city can obtain its total labor
costs as presented in Table 7. The increased costs represent 0.62% of the city's personnel expenses
in FY 2004 at $9.44 per hour and 1.05% at $10.81 per hour. (City of Miami, 2003)
Table 7
Total city employee costs
Living Wage
Part-time
Full-time
Total
$9.25/hr.
$1,157,410.08
$584,701.41
$1,742,111.49
$9.44/hr.
$1,249,994.90
$664,703.15
$1,914,698.05
$9.50/hr.
$1,279,232.21
$690,744.12
$1,969,976.33
$10.00/hr.
$1,522,876.45
$912,881.39
$2,435,757.84
$2,935,463.75
$10.50/hr.
$1,780,015.59
$1,155,448.16
$10.59/hr.
$1,827,158.87
$1,201,193.38
$3,028,352,25
15
$10.81/hr.
$1,942,770.23
$1,313,545.94
$3,256,316.17
In conclusion, Table 8 provides the total additional payroll costs incurred if the city were to
adopt the living wage. The total cost includes both municipal payroll costs and increased payrolls
costs for service contractors.
Table 8
Total additional payroll costs at differing living wage rates
Living Wage
Contracts
Employees
Total
$9.25/hr.
$371,319.90
$1,742,111.49
$2,113,427.38
$9.44/hr.
$388,632.64
$1,914,698.05
$2,303,330.69
$9.50/hr.
$392,947.20
$1,969,976.33
$2,362,167.06
$10.00/hr.
$416,052.05
$2,435,757.84
$2,858,855.91
$10.50/hr.
$445,785.62
$2,935,463.75
$3,380,061.25
$10.59/hr.
$450,171.08
$3,028,352.25
$3,476,782.07
$10.81/hr.
$473,778.89
$3,256,316.17
$3,730,095.06
These figures illustrate the total increased payroll costs to all employers. The authors believe this is
an "upper end" estimate of what the total costs to the city could be, because it incorporates
assumptions that maximize costs to the city beyond what is likely. For example, we assume that all
additional contractor payroll costs will be passed on the city in the form of higher contract costs. As
research elsewhere has demonstrated, often living wage ordinances do not result in any increased
contract costs to the city adopting a living wage. Also, we made no allowance for an "efficiency
wage" effect, although evidence indicates that there will likely be one. Workers who are paid
"above the norm" tend to be absent less, tardy less often, less prone to quit, to have higher morale
and to put in greater effort, etc. The savings from lower employee turnover alone will likely be
substantial. None of these savings are incorporated into the calculations used to arrive at the above
figures.
Of course there would be other benefits and savings to the city from adoption of a living
wage policy. These "indirect benefits" would be very hard to quantify however, and we make no
attempt to do so here. However, it is important to realize that workers who are able to pull
16
themselves out of poverty, perhaps afford the down payment on a modest home, provide for their
own health care rather than relying on the emergency room of Jackson Memorial Hospital, send
their children on to college rather than making them work to support the family, etc. become an
asset to the city and the surrounding county, rather than a "drag" on it, both economically and in
civic contributions to the community.
There could be additional indirect costs too, however. The two most significant are
potential monitoring costs, and a "ripple" effect cost. Monitoring costs refer to the personnel
expenses the city may incur in implementing and overseeing the living wage ordinance. Predicting
the cost of this on Miami is difficult. It may cost next to nothing, if the city is able to assign living
wage monitoring costs to existing city personnel already overseeing similar work. If the city would
need to add additional personnel, costs may rise. We make no prediction of what the city would do
in this regard — we only note that the cost could range anywhere from $0 to $200,000, depending on
how elaborate the city chooses to be in its monitoring and oversight. Monitoring costs are not
mandatory and it is up to the city's discretion as to how the living wage initiative would be
implemented and monitored.
The same is true for potential "ripple" effects. The ripple effect refers to pay increases that
may be granted beyond what is required by the living wage ordinance. The city and/or city
contractors may choose to do this to maintain some degree of pay differentials at the bottom of the
wage structure between employees with different skills and/or length of employment. For example,
if the new living wage floor if $10 per hour, will an employer raise the pay of employees previously
making $6.50 per hour and $9.75 per hour to $10 per hour? Or will the employee previously
making $9.75 per hour get a larger increase, beyond that required by the law?
17
This is an issue that is up to employers to decide, but many of them (almost certainly the
city) will decide to grant additional raises, to maintain a degree of pay differential. It is important to
note here that a "ripple effect" pay increase is not mandatory. As long as the city pays contract and
municipal employees at the legally mandated level, the extent of a ripple cost would depend solely
on the city's judgment.5
Determining the size of the ripple effect is perhaps the most challenging issue to address.
Because this is entirely a discretionary matter for the city to decide, we can only recommend that
the city keep ripple effects to a minimum, using a method similar to that advocated in footnote 5.
Because there is no way to predict what the city will decide to do regarding "ripple effect" wage
increases, we leave out any estimate here. (We do know that private contractors will make the
ripple effect raises minimal, because market pressures will induce them to highly compress the
wage differentials at the very bottom of the wage scale. So we are very confident that ripple costs
will be very minimal for the city's service contracts.)
If the city rationally addresses the monitoring and ripple costs, we are very confident that all
increased costs will be completely offset by the efficiency wage and partial -pass -through cost
savings. Therefore, we stand by the numbers in Table 8 as prudent estimates of total costs to the
city, should it pass a living wage ordinance. With intelligent implementation, the costs could be
lower — much lower, as experience elsewhere has shown.
i While the final decision belongs to the city, the authors would recommend that the city consider implementing pay
increases to those below the new living wage level in a manner that compresses, but maintains, the pay differentials.
For example, starting with the lowest paid worker, if the new pay structure maintains a 2 cent pay differential for each
10 cent pay differential under the old pay structure, the pay increases would get progressively smaller as you move up
the pay scale, eventually decreasing to $0 at some point between $1 and $1.50 above the new "living wage" floor.
Differential pay levels are maintained, additional costs are minimi7P.d, and the city avoids inadvertently paying wage
increases to employees who are in a higher segment of the labor market than that of the living wage beneficiaries.
18
SUMMARY AND CONCLUSIONS
As illustrated, implementing a living wage in Miami at $9.44 per hour could cost the city
roughly $23 million. The corresponding figure would be $3.7 million at a $10.81 per hour
living wage rate. These figures represent 0.74% and 1.21% of the city's current personnel
budget of $30938 million.
This report has focused only on costs, not the benefits of a living wage ordinance. We find
the costs to be rather small, in the vicinity of 1% of the city's personnel budget. If the city were to
follow the pattern set by the Miami -Dade Living Wage Ordinance by requiring a wage of $9.44/hr.
if health insurance benefits are provided or $10.81/hr., if they are not indexed for inflation in later
years. The final cost would end up somewhere between the $2.3 million and $3.7 million cost
calculated at those two wage levels, depending on the number of covered employees who already
are provided health insurance. Since some presently have health coverage and many do not, the
final cost is likely to be approximately $3 million. It could very well end up costing less than
this, but budgeting for this amount would be prudent if the city wishes to be certain it can afford the
cost.
Whether this cost is worth the many benefits of a living wage is a political decision for the
Miami City Commission to make. This report has detailed the likely costs, which end up being
rather small. In the estimation of the authors, the well-known anti -poverty benefits and the small
cost make adoption of a living wage ordinance a very attractive option.
19
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http://www.census.gov/epcd/ec97brdg/.
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basis [Data file]. Washington, D.C.: United States Census Bureau. Retrieved March 22,
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1997 Economic Census: Summary statistics for Florida, 1997 NAICS basis [Data file]. Washington,
D.C.: United States Census Bureau. Retrieved March 22, 2004, from
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1997 Economic Census: Summary statistics for United States, 1997 NAICS basis [Data file].
Washington, D.C.: United States Census Bureau. Retrieved March 22, 2004, from
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York: Cambridge University Press.
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Department of Employee Relations.
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Integrated Public 'Use Microdata Series — 2000 5% Census PUMS: 2003 [Data file]. Minneapolis,
MN: Historical Census Projects.
Katz, L. F. (1986). Efficiency wage theories: A partial evaluation (NBER Working Paper No.
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20
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21
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22