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

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APPENDIX 5. ` 53 that increased labor costs can be passed on to the city government, there would be no need for contractors to reduce employment. Of course,this could mean additional taxes for city residents. The other possiN ity—where there are more competitive markets and bidding practices—also cuts both ways. That is,if contractors are forced by the higher labor costs to increase productivity and therefore reduce employment, the taxpayers gain from the increased productivity. In the case of Baltimore, there have been no additional costs nor measurable effects on employment. The results, however unexpected, are consistent with the most recent research in labor economics, in which competitive pressures, efficiency gains, or other responses can produce a labor market outcome with neither price nor employment changes following a minimum wage increase. Conclusion The predicted negative effects of raising wages for workers employed on city contracts have not materialized in Baltimore. The cost of the affected city contracts did not increase, and in fact decreased. Most payroll employment data for the relevant city contractors is not yet available, but interviews with contractors indicate that they did not reduce their workforce in response to the higher wage. The number of bidders for the contracts in our sample declined, but this change was not statistically significant. And finally, there is no evidence that the ordinance discouraged investment generally in Baltimore. It will take more time, as well as further research, to determine exactly how contractors are responding to the ordinance, and how their responses affect employment, productivity, and costs to the city government. As the living wage continues to rise to $7.70 per hour over the next two years, there will be greater potential for cost increases and other effects. But for now, it is clear that in the 21 months since it was enacted by the city, the stated fears of those who oppose living wage legislation have found no basis in this case. It also must be noted that the present analysis includes no assessment of the significant potential benefits of the living wage ordinance—substantially higher income for low-wage workers and their families, with attendant increases in their quality of life and cost savings as the demands these individuals place on federal, state and local government programs is reduced. The full extent of these benefits awaits analysis.But any finure costs to the city of Baltimore that may arise from the living wage ordinance must be weighed against these benefits. 14