Agenda - 05-21-1997 - 10b - Laserfiche WebLink

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48 APPENDIX 5. 48 As can be seen from the totals, the nominal cost of the contracts covered by the ordinance increased by only $42,242, or less than one-quarter of one percent. In real terms, adjusting for inflation, there was an absolute decrease in costs. The fifth column of Table 2 shows the price of the most recent contracts adjusted for inflation." In real terms, the total cost of these contracts declined from $19,326,066 to $18,860,329, or 2.4%. The average contract price, weighted by its share in the total cost of the sample, declined by 1.92%. (This is shown in the last column of Table 2). This decline is statistically significant at the .001 level.is This is a surprising result, given that at least some of the contractors in this sample faced an increase in their labor costs as a result of the living wage. The most likely explanation is that other factors overwhelmed the impact of these cost increases. From interviews with contractors it appears that it is a common practice to try to underbid the previous year's contract, and it may be that the competitive pressures of the bidding process were enough that contractors were forced to absorb the increased costs of the living wage. This is most likely true for the food and bus contractors, who reported that they did not adjust their bids for the increased labor costs. Most janitorial companies reported that they did in fact take the increased labor costs into account when formulating their bids, but these increases did.not show up in the overall costs of the new contracts. We cannot, of course, conclude that the living wage ordinance actually contributed to lowering the cost of the average contract. However it is worth noting that there are efficiency gains at the higher wages, and these could have lowered total costs. In telephone interviews with the contractors, many stressed the relationship between a higher wage and a lower rate of turnover. One of the larger janitorial contractors who said he always paid more than the Federal minimum states that at wages below $5.00 an hour, the problems of turnover and absenteeism were too large. If turnover is actually lower under the new wage, and contractors insist that it is, productivity increases could offset all or part of the increased labor costs. And since high rates of turnover can make it more difficult for a contractor to fulfill the contract, the higher wage can protect the city from having to award increases to contractors who cannot fulfill their obligations in the agreed upon time and dollar amount. The number of workers impacted is fairly small, so even if contract costs had increased by the full amount of the potential increase in labor costs, the impact on Baltimore's $2 billion budget would have been very slight. However, even these very small increases in the cost of city contracts did not materialize. Furthermore, the results of this study indicate that even if the contracts covered had comprised a much larger share of the City's budget, the predictions of significant cost increases would not have been borne out. In addition, the argument that the cost of monitoring and enforcing compliance with living wage laws would impose significant new costs on taxpayers is not supported by the evidence from Baltimore. According to Baltimore's Bureau of Management and Budget Research, the wage ltle prices were adjusted by the Consumer Price Index for the time that elapsed between each pair of contracts. 13 t,j -3.978. 9