INTRODUCTION
 

    The Community Coalition for a Living Wage, a coalition composed of numerous community, labor, civil rights, and church groups, has proposed that Miami-Dade County pass an ordinance requiring the county and all those having service contracts with the county to pay all employees a wage above federal poverty level wages, i.e., a "living wage".  Living wage ordinances have been passed in more than 15 cities and counties in the U.S.; in all, more than 35 municipalities or counties are now considering similar legislation.

    The proposed Miami-Dade County ordinance calls for all service contractors with the county who hire within Miami-Dade or immediately adjacent counties to pay all of their workers a "living wage", which is defined as 10% above the 1997 federal poverty level wages needed to sustain a family of four.  It also mandates that provision for health care insurance, at the rate of $1.25 per hour, must be given to all workers earning the new living wage.  The same provisions are applied to the county itself.  Following the first year, wages would be indexed to the inflation rate, ensuring that they would remain above the poverty level.  (A copy of the proposed ordinance is included as Appendix A at the end of this report.)

    The earliest living wage ordinance was passed in Baltimore in 1994.  Recently, cities like Los Angeles, Boston, Minneapolis, Milwaukee, Oakland CA, New Haven, and others have passed similar ordinances.  Santa Clara County, California has passed one of the most comprehensive pieces of legislation.  Some ordinances cover only contractors with the city or county, some cover also recipients of public subsidies, and some cover the public entity itself.  While details differ, all ordinances appear to be motivated by the belief that public money should not be used to subsidize or create working poverty, or to subsidize or fund employers who pay below poverty level wages unable to sustain a family.  The belief is that public money should instead be used to maintain or elevate living standards in the community, especially for those who are working year round attempting to sustain themselves.

    The purpose of this research report is to ascertain what would be the impact of a living wage ordinance in Miami-Dade County.  Who would benefit, and who would lose?  What are the costs and the benefits?  Are there likely to be unintended adverse consequences?  How would such an ordinance impact on county finances?  Questions of this sort are addressed in this report.

 THEORETICAL ARGUMENTS ABOUT LIVING WAGE ORDINANCES

     The arguments surrounding living wage ordinances are similar to those concerning minimum wage legislation.  Proponents argue that the lowest waged workers cannot get an adequate income if wage setting is left entirely to "market forces", as markets are structured for those making the lowest wages.  They lack bargaining power and are forced into accepting untenably low wage levels.  Many proponents would also argue that existing wages for these workers actually undervalue their labor due to peculiarities making the market at this level other than "free". Noting that over 20 percent of the country's poor families have at least one family member holding a full-time job, and that virtually all the new wealth created in the country in the past twenty years has gone to the upper 20% of the income distribution, they argue that the government has a responsibility to intervene and create a more just distribution of the nation's income.

    They picture the living wage movement as a movement for family values, since grinding poverty forces a family either to break up or to depend heavily on government subsidies, neither of which is supportive of strong families.  Beyond the moral arguments, proponents argue that forcing higher wages has a number of direct economic benefits to the individual workers and their families, to the community, to the local government, and even to the employers of these workers.  The arguments, which will be assessed later in this report, concern greater self sufficiency and purchasing power for the family, lowered level of government support services, greater consumer spending in the community, and increased employee morale and efficiency with lower turnover for the employer.

    Opponents often rely on the theoretical or ideological belief that the market should be the ultimate determinant of economic distribution.  In this view, any deviation from a strictly "free market" approach induces distortions and inefficiency.  Beyond the purely ideological argument, they argue that a living wage ordinance will cause undue increases in costs to the government, that it will likely lead to increased unemployment, that administrative compliance costs for contractors will be very large, that companies may choose to not bid on contracts if faced with such an ordinance, and in general that such an ordinance would send the "wrong signal" to the business community, thus discouraging further investment in the area.  These arguments will also be examined in the course of this research report.

  PREVIOUS RESEARCH ON LIVING WAGE ORDINANCES

    By far the most important research on the effects of living wage ordinances would be studies of the actual consequences of ordinances already passed.  Studies of likely future consequences by necessity must rely on assumptions which may or may not approximate actual conditions.  Depending on the researcher's bias, the likely effects can be made to appear wonderful or fearsome, simply by shifting assumptions.  While good academic researchers strive to avoid all bias in their research, it is nevertheless impossible to avoid the use of assumptions and theoretical frameworks which are less than proven. Therefore "after-the-fact" investigations are the most informative, particularly in relatively new fields where a great deal of previous empirical research does not exist.

    There are only two studies of the subsequent impact of a living wage ordinance, both looking at the impact of the Baltimore ordinance.  The 1994 Baltimore ordinance mandated a minimum hourly wage of $6.10 for anyone working on a city service contract, going up in stages to $7.70 by January 1999.  In October 1996 the Preamble Center for Public Policy, a Washington D.C.-based research center, conducted a study of the impact after one year.  (Weisbrot and Sforza-Roderick, 1996)  The study found evidence supporting nearly all of the claims of living wage proponents, and was unable to find any of the negative consequences predicted by opponents.  The study's 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.

    While some of these results may seem to be counter-intuitive, they are nevertheless factual.  The decreased cost of contracts, for example, is probably not caused by increased labor costs in those  contracts.  But any increased labor costs were swamped by other factors or events which made the final cost go down.  It is worth noting that the study made no attempt to measure most of the benefits of the living wage ordinance, such as cost savings due to decreased use of government public assistance programs or increased spending due to higher incomes.  It does speculate that higher wages resulted in efficiency gains, noting that many contractors stressed that labor turnover dropped following the ordinance.  Lower turnover leads to productivity increases which could offset all or part of the increased labor costs.

    The second study of the effects of the living wage ordinance in Baltimore was conducted by the Economic Policy Institute in Washington, D.C.  (Niedt, Ruiters, Wise, and Schoenberger, 1997)  It studied the ordinance after two years of operation, and arrived at conclusions similar to those of the previous study.  They found that, after two years, the cost to the city of the service contracts went up 1.2%, which was less than the inflation rate.  In other words, the real cost actually declined despite the increase in wage rates.  Their report is considerably more detailed than the previous one, and it addresses a number of new questions regarding part time and full time employment, large vs. small contractors, etc.  But their overall conclusions, as given in the executive summary, are as follows:

* 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.
 

    In summary, the two studies that have been done examining the actual effects of a living wage ordinance have arrived at extremely positive conclusions.  None of the predicted negative outcomes materialized, while a good many of the predicted positive outcomes were in evidence.  This is extremely important evidence; it parallels recent empirical research questioning the economic dogma that an increase in the minimum wage leads to loss of low wage employment.  (See Card and Krueger in the bibliography).

    However it is important to note that the level of wage increases, on a yearly basis, in the Baltimore ordinance are fairly small.  Perhaps much more substantial increases, such as those envisioned in the proposed Miami-Dade ordinance, would have larger and more important effects that would include negative ones.  Therefore the Baltimore evidence does not provide definitive answers to questions about the proposed Miami-Dade ordinance, but it does provide extremely strong evidence that the strongest, and most ideological, arguments against a living wage ordinance are not factually based.

     A study of the likely impact of a living wage ordinance on Miami-Dade County would be very useful; this report is an attempt to fulfill that need.  Throughout, the author attempts to conduct the research with as few assumptions or ideological biases as possible.  The report aims to provide a sober assessment of actual benefits and costs, calculated with maximum caution and care.  The best data bases available are also used to determine crucial figures.

 LIKELY COSTS OF A LIVING WAGE ORDINANCE

    The straight labor cost increases from a living wage ordinance are easier to determine than some of the benefits, which flow back to the county and its residents through numerous economic and governmental channels.  Therefore this report calculates increased labor costs first, but the reader is cautioned to wait until the full set of costs and benefits is calculated before judging overall impact.

    The first task is to determine which of the county contracts would be covered by the proposed ordinance.  The author obtained a copy of all county contracts which were in effect during the calendar year 1997 (many, of course, were multi-year contracts extending well before or well beyond the year 1997).  Using contract titles as a guide,  "service" contracts (as opposed to contracts delivering material goods or in construction) were determined.  Of the more than 1800 contracts held by the county, between 300-400 were determined to be totally or primarily for "services".  Of these, 266 were determined to be services performed by employers in Miami-Dade County or one of the immediately adjoining counties, thus qualifying for coverage under the proposed ordinance.  These 266 contracts cost the county slightly more than $106 million.  A few contracts which should have been included may have been missed, or perhaps a few contracts which do not belong were included, but the author is confident that the resulting list is a very close approximation of the local service contracts held with the county in 1997.

     These 266 contracts were assigned federal SIC (Standard Industrial Classification) numbers to indicate their industry.  SIC numbers were double checked by comparing the SIC number assigned to the one given for the contracting company in Dun and Bradstreet "Disclosure" data files, and corrections were made.  Each contract was then given a "yearly" cost -- e.g., a $300,000 three year contract was given a yearly cost of $100,000, or a $1 million four year contract was given a $250,000 yearly cost.

    These yearly cost figures were converted into approximate employment on each contract by consulting federal census data on number of employees in Miami-Dade county per $100,000 of sales.  For example, if there were 3 employees per $100,000 of sales, and if the contract was for $300,000 per year, the contract was considered to have 9 (3 X 3) employees working on it.  Thus, the approximate number of workers working on each service contract was determined.  Total employment for the 266 contracts was approximately 2,983.  The main assumption made in doing this calculation was that county contractors were no different than other similarly sized businesses in their industry concerning employment .

    To determine what percentage of these 2,983 workers were being paid less than specified 'living wage" levels, 1990 Census data for Dade county (giving 1989 wage rates) were used.  (Raw census data was used; figures were not determined from averages or distribution charts.)  The 1989 hourly  wage levels were updated to 1997 levels by changing each worker's wage according to the increase (or decrease) in county wages between 1989 and 1997 in that industry in the county, according to Department of Labor data.  Thus, a 1997 "wage levels" data base was created.

    From this data base, the percentage of service contract workers being paid below the specified "living wage" levels were determined.  For purposes of analysis, the "living wage" was set at the levels needed to be 10% above the 1997 poverty level for a family of four, or $8.56 per hour.  This level was chosen because it is the level specified in the proposed living wage ordinance.  Simply for purposes of comparison, the report also performs calculations if the living wage were set 20% above poverty levels ($9.34 per hour), 30% above ($10.11 per hour), and at the poverty level ($7.78 per hour).  The results are contained in the Table 1.

    Number of workers making more than $10.11                     1196
    Number of workers making between $9.34-$10.11              155
    Number of workers making between $8.56-$9.34                184
    Number of workers making between $7.78-$8.56                179
    Number of workers making under $7.78 (poverty level)      1269
                                                                         TOTAL          2983

    Table 1 shows that 1269 out of 2983 (42.5%) of the workers on county service contracts were earning below the poverty level wage of $7.78 per hour, and 1448 out of 2983 (48.5%) were earning less than the $8.56 per hour called for in the proposed ordinance.  If higher levels were set for the "living wage", larger percentages would fall below the living wage: 54.7% at the $9.34/hour level (1632 out of 2983), and 59.9% at the $10.11/hour level (1787 out of 2983).

    Next it was determined how much more, on average, each worker would have to be paid to be brought up to the designated "living wage" level.  This was done for each industry.  Table 2 shows the number of different types of workers working on county service contracts, the number working below wages of $8.56/hour, and the average increase each of those number would receive, were they to be brought up to the "living wage" level of $8.56/hour.
 
 

                                                           # of                       # below                       average yearly
Type                                              workers                      $8.56                     increase if paid $8.56
------------------------------------------------------------------------------------------------------------------
Temporary help                          1,238                          609                                $2,230

Security guards,                             861                          464                                $3,015
private eyes

Janitors                                             199                          115                               $2,955

Auto body repair,                            82                            41                               $2,981
carwash, tire, tow

Lawncare, agricultural,                     72                           42                                $3,516
landscaping

Catering, coffee service                    71                          39                                 $3,034

Dry cleaning, uniform                       39                          23                                 $3,362
rental, shoe and clothing
repair

Heavy equip. welding                       31                         19                                  $3,671

Medical exams                                 31                         13                                  $2,225

Assorted business services                27                         12                                  $1,789-3,635
(SIC #'s 7319-7342)

Transport, storage, vessel                 35                            8                                 $759-2,447
removal

Computer services                          116                            4                                  $171

Recycling, waste removal                  45                            7                                  $597

Recreation, youth camp,                    19                           6                                  $1,158
amusement

Business services                               19                           7                                  $1,789
(SIC #'s 7383-7389)

Office repair/maintenance                   19                           8                                 $1,902

Misc. maint., repair                            12                           7                                 $3,671

Misc. repair to boats,                         10                           6                                 $88-2,662
runways, power plants

Printing                                                  20                          5                                $1,108

Research, training, testing,                   18                           4                                $634-1,692
consulting

Therapy, medical lab tests                    16                          5                                $1,136-2,377

Housing, building mgmt.                         4                           1                               $1,595

Construction repair                               3                            1                               $1,694

Broadcast services                              .3                          .04                              $590
 

    From the above table it is apparent that temporary help and security guards are  1073 out of 1448 (74%) of those who would receive raises under the ordinance.  Adding janitors, auto maintenance, lawn care, catering, and clothing cleaning/rental and repair brings the total to 92% of all of those benefitting from a raise.  (1333 out of 1448).

    Table 3 presents the same information if the living wage is set at 20% above the poverty level, at $9.34 per hour.  (In the interests of brevity, only the first seven categories, comprising approximately 92% of all benefitting workers, are included in this table, although all will be included in subsequent calculations of cost.)

                                                    # of                          # below                   average yearly
Type                                         workers                         $9.34                increase if paid $9.34
------------------------------------------------------------------------------------------------------------------
Temporary help                              1,238                              680                      $2,831

Security guards,                                 861                              530                      $3,865
private eyes

Janitors                                                199                             128                      $3,753

Auto body repair,                               82                                47                       $3,785
carwash, tire, tow

Lawncare, agricultural,                        72                               48                        $4,483
landscaping

Catering, coffee service                        71                               43                       $3,850

Dry cleaning, uniform                           39                               24                       $4,214
rental, shoe and clothing
repair

    Numbers and wage increases were also calculated if the living wage were set at 30% above poverty level, or at $10.11 per hour.  Table 4 presents the information at this wage level.
(Again, only the first seven categories are presented, for brevity.)

                                              # of                          # below                       average yearly
Type                                   workers                      $10.11                     increase if paid $10.11
-----------------------------------------------------------------------------------------------------
Temporary help                      1,238                          754                                   $3,495

Security guards,                         861                          573                                   $4,785
private eyes

Janitors                                      199                          141                                   $4,628

Auto body repair,                         82                            51                                  $4,330
carwash, tire, tow

Lawncare, agricultural,                 72                             50                                  $5,500
landscaping

Catering, coffee service                71                             46                                  $4,700

Dry cleaning, uniform                    39                            26                                  $5,060
rental, shoe and clothing
repair

Finally, Table 5 presents the same calculations if the living wage is set at the poverty level, or $7.78 per hour.  (Again, only the first seven categories are presented.)

                                                  # of                             # below                  average yearly
Type                                      workers                            $7.78               increase if paid $7.78
------------------------------------------------------------------------------------------------------------------
Temporary help                          1,238                              522                              $1,728

Security guards,                             861                              413                             $2,260
private eyes

Janitors                                             199                             106                            $2,244

Auto body repair,                            82                               35                              $2,252
carwash, tire, tow

Lawncare, agricultural,                     72                              38                               $2,266
landscaping

Catering, coffee service                    71                              36                               $2,296

Dry cleaning, uniform                        39                             22                               $2,257
rental, shoe and clothing
repair

     From the above tables it is possible to determine direct wage increase costs to county service contractors if the living wage ordinance were passed and labor demand were unchanged.  If the living wage is set at the level mandated in the proposed ordinance, at  $8.56/hour, the direct labor costs of county service contracts in 1997 would have increased approximately $3.788 million; at $9.34/hour, the increase would have been $5.461 million; at $10.11/hour it would have been $7.348 million; and at $7.78/hour it comes to $2.552 million.

    In addition to direct labor costs, payroll taxes would increase also.  Setting payroll taxes at an average of 11.75% (FICA of 7.65%; unemployment compensation at 1.8%; and workers compensation at 2.3%), payroll taxes would increase approximately $445 thousand at the proposed $8.56/hour wage level.  At $9.34/hour they would go up $642 thousand; at $10.11/hour they would rise $863 thousand, and at the poverty level of $7.78/hour they would go up $300 thousand.

    Firms would also have "compliance costs", that is, costs of preparing payroll data to give to the county to prove compliance.  Firms are required by the ordinance to submit payroll data twice a year to the county to prove compliance.  A reasonable assumption is that preparing this data would require the equivalent of one full day of an office worker's time each time, or two full days per year.  This full day will probably be divided among professional and secretarial staff, so an average hourly pay rate of $20 per hour is used, which is the equivalent of an average annual salary of $40,00 per year.  Adding 15% of total labor costs for overhead, one arrives at an annual total cost of approximately $368 per firm for compliance costs.  This comes to $97,888 for all 266 firms.

     There will also be health care costs due to the provision in the ordinance requiring health care coverage for those who did not have it before.  To obtain estimates of health care coverage, we used data from the federal government's Current Population Survey.  This data is less reliable than data used to determine previous figures; it is based on sampling, and the samples are often rather small.  Because of this the author was forced to use data for the entire state of Florida rather than Miami-Dade County figures.  Even then, in many industries the sample was extremely small.  For that reason, specific data for specific industries cannot be considered totally reliable, although the aggregate figures for the entire pool of workers should be roughly accurate.  This report presents only aggregate figures for that reason.

    The percentages of workers in each industry below the specified wage levels without any health insurance were calculated.  The percentages were then multiplied times the numbers of county contract workers in those industries, arriving at the number without coverage.  This number of workers was then multiplied times $1.25 per hour worked (whatever their workweek was, according to Census figures).  (The ordinance calls for $1.25/hour in health insurance payments.)  The resulting figure was then multiplied times the number of weeks worked in a year (again, given by the government statistics).

    The results show that 614 workers would newly receive health insurance if the living wage is set at $8.56/hour; 679 would at the $9.34 level; 702 would at $10.11/hour; and 572 would at the $7.78/hour poverty level.  At $1.25 per hour for health insurance, and considering average work week and average weeks worked per year, the additional costs for health coverage come to approximately $1.401 million at the $8.56/hour level; $1.542 million at the $9.34 level; $1.578 million  at the $10.11 level; and $1.272 million at the $7.78/hour level.

     Adding all these costs up, the total cost increase at the specified living wage of $8.56/hour would be $5.731 million.  If the living wage were set at higher or lower levels between the poverty wage and 30% above the poverty wage, total increased costs would range between $4.222 million and $9.886 million.  Final total cost increases are presented in Table 6.

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE:)
 
 

Living Wage	Wage Increase	Payroll Tax inc	Compliance Cost	Health ins. cost	Total
$9.34/hour	$5,461,178.06	$641,688.42	$97,888.00	$1,541,845.89	$7,742,600.37
$10.11/hour	$7,347,782.31	$863,364.42	$97,888.00	$1,578,191.47	$9,887,226.20
$7.78/hour	$2,551,523.41	$299,804.00	$97,888.00	$1,272,494.53	$4,221,709.94

    In addition to these direct costs, there may be additional "indirect" costs, known as the "ripple effect".  This refers to any pay increases employers may give beyond those mandated in the ordinance.  In order to maintain a wage spread between more and less skilled workers, employers may give some workers presently below the mandated living wage level a larger wage increase.  As an example, if the living wage were mandated at $8.56/hour, would the employer raise the wages of workers previously making $5.15/hour and those previously making $8.50/hour to $8.56?  Probably the worker previously making $8.50/hour will get a raise beyond the $8.56/hour level, simply to maintain a differential.

     Research into the ripple effect from increases in the minimum wage has found that the effect diminishes rapidly as pay rates go up.  In other words, wages become more equal within affected firms.  (See Katz and Krueger; Lacroix and Dussault in the bibliography at the end of this report).  However, minimum wage ripple effects may not exactly approximate those arising from passage of a living wage ordinance.  There is no question that legislated wage "floors" compress wages and increase equality among wage earners.  But there is considerable controversy about how much, and there is little evidence or agreement about the size of any ripple effect.

    Because of the subjective nature of making a judgment on the size of any ripple effect, in this report it will be left out of the analysis.  The ripple may be rather small, since the living wage ordinance does not cover all workers in an affected labor market, unlike an increase in the minimum wage.  But we cannot be sure.  This report will ignore any possible ripple effect and concentrate only on mandated wage increases, but the reader should be aware that an additional "ripple effect" wage increase could range anywhere from zero to perhaps two million at the specified living wage level ($8.56/hour).  A likely figure is approximately in the middle of these two extremes, but any speculation on this issue is left out of the calculations in this report because of uncertainties over which figure would be accurate.

    The additional costs calculated above would not begin immediately at the commencement of the ordinance.  Since most contracts with the county are multi-year, the increased costs would phase in over the years as new contracts are let out.  On average, contracts are 3 years in duration, so one can roughly calculate that the additional costs would kick in over a three year period.  This means that annual cost increases beyond the previous year's costs should be cut to one third of those presented in Table 6, phased in over a three year period.

     Therefore the upper limit of increased costs to the county compared to the previous year from cost pass-throughs by contractors would be as shown in Table 7.  The upper limit estimate assumes that the higher wages make for no other changes in productivity or efficiency (a highly unrealistic assumption, as shown by the Baltimore example, and as will be calculated subsequently in this report), and also assumes that the contractors will pass on to the county the entire increase in labor costs.  Thus it is an "upper limit" only, and not a realistic estimate of what yearly increased costs to the county would be.

Living Wage Level      Maximum annual cost increase to county (over a 3-year period)

$8.56/hour                         $1,910.415 beyond the previous year

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34/hour                         $2,580,867

$10.11/hour                       $3,295,742

$7.78/hour                         $1,407,236

    In addition, the city will incur monitoring costs.  After passage of the living wage ordinance in Los Angeles, that city hired five "management analysts" to be compliance monitors.  Assuming Miami-Dade were to hire an equal number, and setting these analysts' wages at the rate of $40,000/year (both assumptions are probably too high), this would add $200,000 to the city's payroll.  Adding 15 percent for overhead costs such as rent, secretarial support, office expenses, etc., brings the total to $230,000.  Even with additional costs for benefit packages and the like, direct city monitoring costs will not be very large.

    All of the costs calculated above come from the increased costs incurred by service contracts with the county.  We turn now to direct payroll costs to the county should the ordinance be passed, since the ordinance also calls for the county to pay the same rates mandated for county service contractors.

     The author obtained from the administrative services division of the county employee relations department a list of all county employees making less than $12.00 per hour.  From this list the number of employees earning wages below and between the various levels which could be designated a "living wage" were calculated.  The data will be presented first for full time workers; then for part time workers.

    As of July 1998 the county had 508 full time workers earning less than $8.56 per hour.  It had 1022 earning below $9.34 per hour; 1747 less than $10.11 per hour; and 165 less than $7.78.  It immediately becomes apparent that the county pays better wages than do county service contractors: only 165 out of 1747 low wage county workers (those making below $10.11 per hour) are earning less than poverty level wages of $7.78, or approximately 9.4% of the total.  This compares to 71% of comparable workers for county contractors below the poverty wage (1269 out of 1787).  In other words, service contractors have close to three fourths of their lower wage workers working below poverty level wages, while the county has only 9-10% working at that level.

    Health insurance coverage demonstrates the same pattern.  The county's employee relations department estimates that approximately 99% of all full time employees are given health insurance; for all practical purposes, this is 100%.  Yet close to half of the low wage (under $10.11/hour) employees of county contractors were without health insurance.  In comparison to county contractors, the county appears to be a "model employer", or a "responsible employer" in its wage and health care coverage policies.

     From this comparison of county and contractor wage and health coverage practices, it is apparent that one of the main impetuses for "privatizing" work normally or formerly done by the county is to save money by allowing work to be done by private contractors who create "working poverty" and a labor force dependent on public assistance for their health care needs.  In other words, public money will be used to create poverty and lower living standards of the community as privatization proceeds apace.

    Table 8 shows the increased annual labor costs to the county if all full time employees were brought up to the various wage levels designated as a living wage.

Living wage         Increased direct labor costs         Increased payroll taxes          Total

$8.56/hour                       $836,541                                $98,294                   $934,835

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34                            $2,089,798                              $245,551                  $2,335,349

$10.11                          $4,338,440                              $509,767                  $4,848,207

$7.78                               $292,350                                $34,351                     $326,701
 

    Added to this is the increased costs for part time employees.  According to county payroll files provided, there are 1283 employees working for the county part time who earn less than $8.56 per hour.  There are 1435 working for less than $9.34/hour; 1554 working for less than $10.11/hour; and 1054 working for less than $7.78/hour.

    Unfortunately, the county was unable to provide the number of hours worked by part time employees; the data is incomplete.  Therefore assumptions were necessary to calculate increased costs for paying living wages and giving health insurance to part time employees.  This report assumes the following: part time employees work, on average, 20 hours a week.  Individuals in the county employee relations department stated that approximately 80% of part time employees are not given health insurance (if they work 30 or more hours a week, they are entitled to health insurance; apparently 80% work less than 30 hours per week).

     Assuming that 80% of part time county workers are not given health insurance by the county, how many of them have no health insurance at all?  A reasonable assumption is that  the percentages are the same as those discovered for county contractors, where 39% of low wage workers were without any private health insurance at all.  Eighty percent of the 1283 part time county workers earning less than $8.56/hour is 1026; 39% of these mean that 400 of the county's part time workers would newly receive health insurance at the rate of $1.25 per hour or an equivalent raise, as mandated by the ordinance.  In addition, 251 county part time workers earn more than $8.56, but less than ($8.56 + $1.25, or $9.81).  It is assumed that 39% of the four fifths of these not presently given county health insurance have no health insurance, and that the county will choose to raise these workers' pay to $9.81/hour rather than provide health insurance, which would cost more.  The average raise will be $ .625/hour, since the raises could range from $1.25 down to 1 cent or less.  It is also assumed that part time workers work a full 52 weeks a year, although this assumption undoubtedly raises the cost beyond what actual costs would be.

    Using these assumptions Table 9 presents the increased costs of pay raises and health insurance for part time county employees at varying living wage levels, should the ordinance pass.

Living                Increased direct              Increased               Health insurance
Wage                  labor costs                 payroll taxes                    costs                   Total

$8.56                   $2,589,435                 $304,259                  $571,288         $3,464,982

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34                   $3,699,337                 $434,672                  $617,526         $4,751,535

$10.11                 $4,920,186                 $578,122                  $650,177         $6,148,485

$7.78                   $1,625,114                 $190,951                  $489,356         $2,305,421
 

Adding the increased costs for both full time and part time workers for the county derives the total of increased county labor costs, presented in Table 10.

Living Wage              Full time workers             Part time workers            Total

$8.56                            $934,835                        $3,464,982             $4,399,817

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34                           $2,335,349                      $4,751,535             $7,086,884

$10.11                         $4,848,207                      $6,148,485            $10,996,692

$7.78                              $326,701                      $2,305,421            $2,632,122

      From Table 10, it is apparent that the county would have to spend considerably more to bring its part time workforce up to living wage standards than is the case for its full time employees.  This indicates that both the pay standards and the health insurance coverage for part time workers are distinctly inferior to that of full timers; the county loses a bit of its "model employer" luster when part time employees are included in the calculations.  Just as with the use of service contractors, the county employs part time workers under conditions which considerably degrade labor standards, compared to its norms for its own full time employees.

     Combining Table 7 with Table 10 produces the total increased labor and health insurance costs of both county contractors and the county under different living wage levels.  Table 11 presents the results.

Living wage                County contractor costs              County costs                Total

$8.56                                 $1,910,415                          $4,399,817           $6,310,232

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34                                 $2,580,867                          $7,086,884            $9,667,751

$10.11                               $3,295,742                          $10,996,692         $14,292,434

$7.78                                 $1,407,236                          $2,632,122            $4,039,358

        This provides an "upper limit" of costs from the proposed ordinance: $6.3 million if the living wage is set at $8.56/hour as proposed in the ordinance; almost $9.7 million if it is set at $9.34/hour; $14.3 million if it is set at $10.11/hour; and approximately $4 million if it is set at $7.78/hour.  This upper limit assumes that no beneficial increases in productivity or morale or turnover would result from the passage of the ordinance; that management practices would not change to utilize the more expensive labor move efficiently; that there are no benefits to the county and its residents from the increased purchasing power or the health care coverage or the lifting of families out of poverty; and that the amount of public subsidies presently given to these families would not go down as their incomes lift them out of poverty.  All of these assumptions are likely to be incorrect; therefore we must look at the benefit side to determine what are the likely benefits and how well they would offset the costs.

LIKELY BENEFITS OF A LIVING WAGE ORDINANCE

      There are at least three possible beneficiaries from the passage of a living wage ordinance.  First, of course, there are the workers who would benefit from pay increases and health insurance, and their families.  Second are the affected employers: the county contractors and the county, which benefit from increases in morale, lower turnover, etc. from the higher wage.  And third are the taxpayers and citizens of Miami-Dade County, who benefit through decreased taxpayer-supported subsidies to maintain workers, their families, and their health, and through increased spending in their communities.  Each of these is taken up in the following sections.

1.  Benefits to the affected workers and their families

     The benefits for affected workers and their families can be shown by picking  a "typical", or average, employee working for a county contractor who is earning below the poverty level wage ($7.78/hour).  This average worker earned $6.77 per hour.  Further, assume a family of four, with one adult working.  (Adjustments to this assumption will be made later, to more fully correspond to actual conditions.  For now, calculations are made for illustrative purposes.)  Then take the same worker and the same family, and calculate their condition if they earned at the designated living wage levels ($8.56/hour; or at the higher and lower levels of $9.34/hour; $10.11/hour, and $7.78/hour).  The resulting changes are given in Table 12.

                                      Wage                Wage                Wage                 Wage               Wage
                                     $6.77/hr.            $7.78/hr.            $8.56/hr            $9.34/hr.       $10.11/hr.

Yearly gross wage         $13,540             $15,560             $17,120            $18,680        $20,220

Federal inc. tax -              $0                        $0                    $69                   $306             $536

FICA (Soc. sec.,etc.)    $1036               $1190                 $1310               $1429            $1547

After-tax earned
Income                         $12,504             $14,370              $15,741            $16,945        $18,137
----------------------------------------------------------------------------------------------------------------
Private Health Care
Coverage                          0                    $2,500                $2,500              $2,500          $2,500

After-tax earned
income +private
health coverage              $12,504            $16,870              $18,241            $19,445       $20,637
-----------------------------------------------------------------------------------------------------------------
GOV. SUBSIDIES
Earned Income Tax
Credit                             $3,320              $2,888                $2,562             $2,236           $1,909

Food Stamps                  $2,832              $2,184                 $1,752               $408               $48

County Pub. Health
Trust health care              $1,150                   0                         0                      0                    0

Disposable income
+ health care                  $19,806            $21,942              $22,555              $22,089       $22,594

     The above table demonstrates a number of things for this "typical" worker and his/her family.  First, their own earnings (income plus private health care) increase markedly with each step up to higher living wage level.  Thus, at the lowest level which could be designated a living wage ($7.78/hour), the worker's own earnings rise 35% from their previous condition; at the next highest and designated one by the ordinance ($8.56/hour) they have risen 46%; at the next highest ($9.34/hour) they have gone up 56%; and at the top level of $10.11/hour they have risen 65%.

    Yet, at the same time, they lose public subsidies as their pay increases.  Thus, if pay increases to the poverty level ($7.78/hour), their subsidies from the government drop $2,230 (30.5%); if pay goes up to the designated $8.56/hour, government subsidies drop $2988 (41%); if it increases to $9.34/hour, subsidies drop $4,658 (64%); and if they earn the top level of $10.11/hour, subsidies go down $5345 (73%).  This is an indication of how much of a hidden government subsidy there is for very low wage workers.  In effect, the employers of these workers are receiving major public subsidies to make possible the reproduction of these workers and their families.  At the average wage level these workers are now receiving ($6.77/hour) the government gives a subsidy of $7,302 per worker.  This is not counting many state, federal, county, and city expenditures for numerous other child care, subsidized school lunch, infant nutrition, public housing, public assistance, etc., programs which are not included in the above figures.  Most scholars put the full public subsidy in the range between $9,000 and $9,700 per low wage worker.  In the above table, the government subsidy drops from $7,302 to $5,072 at the $7.78/hour wage level; to $4,314 at the $8.56/hour wage level; to $2,644 at the $9.34/hour wage level; and to $1,957 at the $10.11/hour wage level.

     Thus, the gains in total disposable income (plus health care) do not rise as fast as do the earnings of the individuals, because dependence on public subsidies declines.  Total disposable income rises by 10.8% at the $7.78/hour level and by 14% at the designated $8.56/hour level, 11.5% at the $9.34/hour level, and 14% at the $10.11 /hour level.  But the percentage of the worker's income which comes from their own earnings rises drastically: from 63% at the pre-ordinance $6.77/hour level; to 77% at the $7.78/hour level; to 81% at the designated $8.56/hour level; to 88% at the $9.34/hour level; and 91% at the top level of $10.11.

     Across the political spectrum, there seems to be agreement that poor people are better off if they are "weaned" from dependence on government assistance.  They are better in all respects (psychologically, morally, financially, in self esteem, etc.) the argument goes, if they earn their income from their own work efforts.  Passage of a living wage ordinance would further this goal greatly; the higher the level chosen as a living wage, the more completely is this goal attained.

    Thus, low wage workers and their families would benefit in at least four ways, should the living wage ordinance be passed: their earned income increases, their spending power increases, they have access to better health care, and they rely less on government subsidies.  On top of these obvious gains, there is the family's access to bank loans and other forms of credit, which would increase greatly.  "Income" from government subsidies does not count toward credit-worthiness, but earned income from employment does.  Families will be better able to purchase homes, automobiles, a higher education for their children, etc.  All of these would of course have positive ripple effects throughout the community.

     Finally, there is the question of dignity.  Undoubtedly, workers' self-images would increase greatly at the better pay levels; the research into the Baltimore ordinance provides abundant evidence of this effect -- the research reports are full of quotes and other evidence that the workers' attitudes toward their jobs and their lives improved greatly after passage of the ordinance.

    One question remains: has this study accurately described the typical low wage worker and their family?  It has assumed a family of four with one working adult and two children.  Yet, national figures show that slightly over half of very low wage workers have a second wage earner in their family.  And the average size of a low wage family is between 2 and 2.5.  Therefore, the above example represents a somewhat atypical family; government subsidies are larger than would be the case for smaller families, or for two earner families.  Therefore, one can calculate the results for a family of 2 with no children and a family of 3 with one child to determine how different the results would be.  The results for a family of two with only one wage earner are presented in Table 13.

                                      Wage                Wage                Wage                 Wage               Wage
                                     $6.77/hr.            $7.78/hr.            $8.56/hr            $9.34/hr.       $10.11/hr.

Yearly gross wage         $13,540             $15,560             $17,120            $18,680         $20,220

Federal inc. tax               $328                  $634                  $866                $1,099            $1,331

FICA (Soc. sec.,etc.)     $1,036              $1,190               $1,310              $1,429            $1,547

After-tax earned
Income                          $12,176            $13,736              $14,944            $16,152          $17,372
----------------------------------------------------------------------------------------------------------------
Private Health Care
Coverage                            0                   $2,500                $2,500              $2,500           $2,500

After-tax earned
income +private
health coverage              $12,176           $16,236             $17,444              $18,652        $19,842
-----------------------------------------------------------------------------------------------------------------
GOV. SUBSIDIES
Earned Income Tax
Credit                             $0                      $0                     $0                          $0                $0

Food Stamps               $624                     $0                     $0                          $0                $0

County Pub. Health
Trust health care           $575                   $0                       $0                         $0                $0

Disposable income
+ health care               $13,375              $16,236              $17,444              $18,652      $19,842
 

    For this family of two with no children, a raise from previous pay levels to the $7.78/hour level would result in his or her own earnings of 35%; an increase to the designated $8.56/hour would increase earnings by 43%; at $9.34/hour earnings increase by 53%; and at $10.11/hour earnings go up by 63%.  These figures are not that different from the corresponding ones for a family of four.

    But the amount of public subsidies lost is much less for this two person family compared to the previous family of four with two children.  If pay increases to any of the designated living wage levels ($7.78/hr; $8.56/hr.; $9.34/hr.; or $10.11/hr), government subsidies disappear entirely, from their previous level of $1199.   Therefore, the family's gains in disposable income go up more in line with the wage increases, because there are few offsetting public subsidies.  An increase from pre-ordinance wages to the $7.78/hour level would result in a 21% increase in total disposable income; an increase to $8.56/hour designated by the ordinance would lead to a 30% increase; at $9.34/hour total disposable income goes up 39%; and at the top $10.11/hour it goes up 48%.

    For this family, the wage increases transfer more directly into increases in total disposable income.  The benefit for this family would not so much be a "weaning" from government public assistance, but direct increases in their incomes and living standards.

Turning to a family of 3 with one wage earner and one child, Table 14 presents the resulting impact:

                                      Wage                Wage                Wage                 Wage               Wage
                                     $6.77/hr.            $7.78/hr.            $8.56/hr            $9.34/hr.       $10.11/hr.

Yearly gross wage        $13,540             $15,560              $17,120            $18,680          $20,220

Federal inc. tax -              $0                   $234                   $469                  $701              $934

FICA (Soc. sec.,etc.)   $1,036               $1,190               $1,310               $1,429            $1,547

After-tax earned
Income                       $12,504              $14,136              $15,341              $16,550        $17,739
----------------------------------------------------------------------------------------------------------------
Private Health Care
Coverage                       0                       $2,500              $2,500                 $2,500            $2,500

After-tax earned
income +private
health coverage            $12,504            $16,636              $17,841              $19,050         $20,239
-----------------------------------------------------------------------------------------------------------------
GOV. SUBSIDIES
Earned Income Tax
Credit                             $1,955              $1,628              $1,380                $1,132             $884

Food Stamps                   $1,788              $1,140               $708                    $0                  $0

County Pub. Health
Trust health care                $863                    $0                   $0                     $0                   $0

Disposable income
+ health care                 $17,110              $19,404              $19,929              $20,182      $21,123
 

     This is the intermediate case between the cases presented in the two previous tables.  This family of three with one child would see its earned income rise by 33% ($4132), 43% ($5337), 52% ($6546), and 62% ($7735) if pay rose from pre-ordinance levels to $7.78/hour, the designated $8.56/hour, $9.34/hour, or the top $10.11/hour respectively.  This is roughly in line with results for the families of four and two.

     Public subsidies for this family would drop more rapidly than they would for the family of four.  If pay increases to $7.78/hour, public subsidies go down by 40% ($1838); an increase to the designated $8.56/hour drops the subsidies by 55% ($2518); an increase to $9.34/hour lowers them by 75% ($3474); and the top rate of $10.11 drops them 81%.

    All of these families are markedly helped by the pay raise to a designated living wage level.  For families with children, dependence on public assistance declines much more than it does for a family with no children.  But in any case, stable families are a more likely result from the increased wages, both because of higher incomes and less dependence on government subsidies.  Higher wages would make intact stable families a more attainable goal for workers in these labor markets.

    Impacts on families with more than one wage earner are not calculated, because it is impossible to predict what the second wage would be.  Most likely the second wage earner will also be working at low wages, so the impacts demonstrated above will also hold to some degree, although the family is less likely to be under the poverty level; rather it will likely be slightly above it.

     It should be noted here that even two earner families with both wage earners in low income jobs may be unable to make ends meet.  This is because the official poverty level is way out of line with actual poverty, if by the term poverty we mean ability to survive at a minimally decent standard of living, as it meant when official poverty statistics were first calculated in 1955.  Because the official government calculation of the poverty level depends on an outdated formula, it has been progressively lowering the actual living standards required to be below the poverty threshold.  Updated to be in line with the standards used in the original 1955 calculation, the poverty level for a family of four in 1994 would have had to be set at about $26,000 per year, not the $15,100 actually used for that year.  (Schwarz, 1998; see also Schwarz and Volgy, 1992).  Leaving no allowance for entertainment, vacations, child care, or savings; and using stringent food budget allocations allowing no more than $1 per meal per family member and assumptions that a 10 year old car will never break down, even $25,000-$26,000 per year would barely cover the 1994 expenses of a family of four.  Thus we can safely say that even dual earner families in low wage occupations are often not above real poverty thresholds, and thus the ordinance would also be an "out of poverty" boost for them too.

2. Benefits for firms contracting with the county

     While contractors are likely to look only at their increased costs from the proposed ordinance, there are also benefits to them were an ordinance to be passed.  A relatively new development in the economics literature is a body of work finding benefits to firms which pay above the amount required by the "market" or the law.  Pay differentials which pay above the norm clearly create a boost in morale of the employee, which translates into higher productivity.  In a similar development, economists are finding -- contrary to previous belief -- that increases in the minimum wage law do not produce discernible employment losses or declines in efficiency.  (See Card and Krueger, 1995)

    The most famous historical case illustrating the phenomenon being discussed is the case of the Ford Motor Company in the early part of the 20th Century.  As Professor Robert Pollin notes,
In 1913, the turnover rate at Ford Motors was roughly 400 percent.  That means that Henry Ford found himself hiring four times the average number of workers he actually needed to staff production over the course of a year.  Rates of absenteeism were similarly high.  Recognizing this problem, Ford instituted the $5.00 a day wage rate for production workers, which amounted to a near doubling of wages at that time.  It is now well documented in the professional literature that Ford's bold move led to significant decreases in both absenteeism and turnover.  (Pollin, 1998, chap.5, p. 8)

     Similarly, the research on the Baltimore living wage ordinance discovered that the higher wages led to higher morale, decreased absenteeism, and decreased labor turnover.  These changes, combined with other factors which change a firm's productivity (more careful use of expensive labor, etc.) create a benefit for the firm.  Employees who feel that their employer pays them better and treats them better than other firms in the same industry are more likely to show up to work, to be punctual, to work hard, to take into account the company's best interests, etc.

     One would expect county contractors, after passage of a living wage ordinance, to become the "Cadillac" firms in their industries.  With their high wages and health care coverage, they should attract and keep the best workers, have the most productive workforce, and over time deliver the highest quality of services.  If this did not occur, it would be a sign of bad management practices, because all of the inducements and potentials for this to happen are built into the higher wage and health care standards.

    Some firms already practice the high wage route to competitiveness.  Since all county contractors would have to compete at the same wage and health care benefit levels, the competition for county contracts should lead to those providing the best and most competitive service on non-wage issues getting the contracts.

    It is impossible to accurately quantify in advance the efficiency impact being predicted.   It is unfortunate that no one has done a close study of the Baltimore case investigating the efficiency gains won from their living wage ordinance.  Even if this was done, however, it would not guarantee that the results would be the same in all jurisdictions.  A series of studies would be necessary before reliable estimates of likely impact could be made; no such series of studies have been done.

    Nevertheless, one can somewhat confidently predict that the wage increases and the newly offered health care benefits will result in a higher caliber of worker and measurable increases in efficiency.  While the exact magnitude cannot be stated, it is instructive to combine the knowledge that there will be productivity increases with a look at how much county contractor's costs will go up, as a percentage of the size of their county contract, as a result of the wage increases and increased health insurance costs.  A few will see substantial cost increases.  These are designated the 'high impact' contractors: employers that will see cost increases totaling more 10% or more of their contract income.  Those whose percentage will be in the 1-10% range are labeled "medium impact", and those in the range of less than 1% are labeled "low impact".

    Table 15 shows the percentage of contractors and the percentage of county contract money which will experience a low impact, a medium impact, and a high impact if an ordinance were passed requiring payment at the $8.56 per hour level.

NUMBER AND %                              VALUE AND %                   TOTAL
IMPACT  OF CONTRACTS             TOTAL VALUE                 CONTRACTS

LOW (less than 1%)                         113 contracts (42%)            $28,450,600   (27%)

MEDIUM (1-10%)                          150 contracts (56%)            $77,514,540   (73%)

HIGH (over 10%)                                3 contracts (1%)                   $207,370   (0.2%)

      Thus, 42% of the contractors, with 27% of the total contract dollars, will experience a low impact with labor cost increases of less than 1% of the size of their contracts.  Even with no special productivity boosting effects from the pay increase, if these contractors simply approximate the average productivity increase of non-farm businesses in the U.S. in the past 30 years (1%), they can absorb the cost increase with no loss to themselves.  Given any efficiency enhancing effects from their new "high pay" status, they will in fact come out ahead.  If one can assume a reasonably competitive bidding process for county contracts, it can be safely predicted that these contractors will in fact pass on none of their tiny increased costs to the county.  The impact will be similar to that found in Baltimore; county costs could even go down for these particular contracts.

    The 56% of contractors with 73% of the business who will experience a medium impact, with cost increases between 1-10% of the contract amount, will probably pass on some of their increased costs to the county, although this is a subjective judgment call.  One estimate is that they will end up passing on to the county approximately half of their increased labor costs.  In a similar study for the city of Los Angeles on the effects of a living wage ordinance there, economist Robert Pollin calculated contractor's increase in costs relative to overall costs (unlike our calculation of increases in costs relative to contract size), and he predicted that contractors would absorb all cost increases up to 10%. This study will proceed on a more conservative set of assumptions, and estimate that approximately half of the increased costs between 1-10% of the contract amount will be passed through, even though this may be an overestimate.

     For the 1% of contractors with 2/10 of 1% of the business who will experience increases of over 10% of the size of their contract, this study assumes that most of the increased costs will be passed on to the county.  Again, this may be a conservative overestimate, but it is safer to err on the side of overestimation than underestimation of costs to the county.

Table 16 performs the same calculations if the living wage were set at $9.34 per hour.

NUMBER AND %                              VALUE AND %                   TOTAL
IMPACT  OF CONTRACTS             TOTAL VALUE                 CONTRACTS

LOW (less than 1%)                          80 contracts (30%)              $21,591,400   (20%)

MEDIUM (1-10%)                         163 contracts (61%)              $80,577,420   (76%)

HIGH (over 10%)                             23 contracts (9%)                $3,835,060     (4%)

As expected, this table shows that the impacts move up as the level considered a living wage goes up.  At this level, 9% of contractors with 4% of the business would experience a high impact.
Table 17 shows the results if the living wage were set at $10.11 per hour.

NUMBER AND %                              VALUE AND %                   TOTAL
IMPACT  OF CONTRACTS             TOTAL VALUE                 CONTRACTS

LOW (less than 1%)                          61 contracts (23%)             $18,923,100   (18%)

MEDIUM (1-10%)                         175 contracts (66%)             $58,937,530   (56%)

HIGH (over 10%)                             30 contracts (11%)             $28,282,300   (27%)
 

    Here again, the impact jumps appreciably because of the higher wage level chosen as a "living wage".  A full 27% of all contract dollars would be in the "high impact" area, experiencing labor costs increases exceeding 10% of the contract amount.

    Finally, Table 18 shows the results if the living wage were set at $7.78 per hour, the poverty level wage for a family of four.

NUMBER AND %                              VALUE AND %                   TOTAL
IMPACT  OF CONTRACTS             TOTAL VALUE                 CONTRACTS

LOW (less than 1%)                         161 contracts (61%)             $30,895,990   (29%)

MEDIUM (1-10%)                          102 contracts (38%)             $74,890,500   (71%)

HIGH (over 10%)                                3 contracts (1%)                    $207,370    (0.2%)
 

     At the $7.78 per hour level, the majority of contractors (61%) would experience a low impact, although the their contracts only account for 29% of the business.  The majority of the business (71%) is in medium impact firms; once again, only three contracts with a minuscule 2/10 of 1% of the business would experience a high impact.

     A closer look at the firms involved shows that at the designated $8.56/hour and at the poverty level wage of $7.78/hour, only two types of businesses would experience a high impact:  shoe repair ($4,550 contract), and car washes ($202,820 worth of contracts).

     At the higher levels of a "living wage", other types of businesses would experience a high impact.  At $9.34/hour, a third type of firm would experience a high impact: janitorial firms, adding almost $3.63 million in contracts to this category.  And at the $10.11/hour level, five types of businesses would experience a high impact: dry-cleaning plants ($68,000 worth of business), a shoe repair shop ($4,550 worth of business), janitorial services ($3,627,690 worth of business), temporary help agencies ($24,379,090 worth of business), and carwashes (202,820 worth of business).   At this level, it is clearly the temporary help agencies which would comprise a large dollar volume going to a high impact industry.

       A later section will calculate the amount of contractor's increased labor costs that are likely to be passed through to the county, given the above calculations.  At this point, it is only noted that contractors themselves would experience benefits from passage of a living wage ordinance, not simply increased costs.

3. Benefits to the citizens and taxpayers in Miami-Dade County

    As is apparent from tables and the discussion in previous sections, taxpayers through various branches of government give large subsidies to maintain workers and their families at the lowest wage levels, particularly to families with children.  Thus, tax paying citizens in Miami-Dade county would benefit from reduced expenditure on these workers as their income increases; the "hidden public subsidy" of low wage employment would decrease.  Table 19 demonstrates some of the taxpayer savings if wages were set at higher wage levels.  This table assumes a family of four, and thus should be considered an "upper end" estimate, since the typical low wage family is smaller than four.

	Saving per  family@$7.78	Saving per family@$8.56	Saving per family@$9.34	Saving per  family@$10.11
Higher income taxes	$0	$69	$306	$536
Lower EITC payments	$432	$758	$1,084	$1,411
Lower food stamp payments	$648	$1,080	$2,424	$2,784
Lower healthcare costs (est.)  (Includes Medicaid, public health trust, etc.)	$2,450	$2,450	$2,450	$2,450
TOTAL	$3,530	$4,357	$6,264	$7,181

     These savings are undoubtedly overstated because the typical low wage family is smaller than four; but they are also understated because they leave out many other forms of subsidy such as subsidized school lunches, public housing, infant nutrition programs, etc.  Nevertheless, they can be used as a rough "upper limit" of savings to taxpayers.

    To get a closer approximation of actual savings, one can also calculate the savings if the typical family is considered a family of two with no children, and if it is considered a family of three with one child.  The results are given in Tables 20 and 21.

	Saving per  family@$7.78	Saving per  family@$8.56	Saving per  family@$9.34	Saving per  family@$10.11
Higher income taxes	$306	$538	$771	$1003
Lower EITC payments	$0	$0	$0	$0
Lower food stamp payments	$624	$624	$624	$624
Lower healthcare costs (est.)  (Includes Medicaid, public health trust, etc.)	$1,000	$1,000	$1,000	$1,000
TOTAL	$1,930	$2,162	$2,395	$2,627

 
 

    For a final determination of likely savings to taxpayers through reduced subsidies, the most realistic figure is likely to be somewhere between the numbers given in Tables 20 and 21.  That is, the typical low wage families are likely to consist of two or three people.  Therefore, averaging the results from those two tables, one arrives at the following savings, per family:

$7.78/hour   -- $2,494.50
$8.56/hour   -- $3,068.00    (THIS IS THE DESIGNATED LIVING WAGE)
$9.34/hour   -- $3,778.50
$10.11/hour -- $4,135.00

     Since the ordinance would affect 3,239 workers at the designated $8.56/hour level, total savings from reduced subsidies to workers and their families could total 3,239 times $3,068, or approximately $9.9 million.  This figure is undoubtedly too high, however, because of the existence of multiple wage earner families.  Even cutting the figure in half, the almost $5 million potential savings is a very large percentage of the estimated upper end costs of $6.3 million at this wage level.

     The corresponding figures for the higher and lower wage levels are as follows: at $9.34/hour, 4089 affected workers times $3,778.50 savings per family equals $15.5 million (divided by 2 equals $7.725 million); at $10.11/hour, 5088 affected workers times $4,135 savings per family equals approximately $21 million (divided by 2 equals $10.5 million); at $7.78/hour, 2488 affected workers times $2,494.50 savings per family equals $6.2 million (divided by 2 equals $3.103 million).

    These potential savings to taxpayers from reduced subsidies seem extraordinarily large.  Since the figures are very rough estimates, they may vary from actual savings considerably because it is impossible to precisely quantify the many living situations of low wage workers.  They are not presented as precise actual savings, but merely to demonstrate the general magnitude of government savings from the proposed wage increases and private health care insurance coverage.  They are useful indicators, but the methodology used to arrive at the numbers is necessarily quite rudimentary.

    Nevertheless, if one subtracts the above savings to taxpayers from the total added labor costs from passage of a living wage ordinance at the different designated levels, costs drop enormously.  Table 22 presents the results.

Living wage             Total added labor costs         Total taxpayer savings         Difference

$8.56                             $6,310,232                           $4,968,626                $1,341,606

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34                             $9,667,751                           $7,725,143               $1,942,608

$10.11                         $14,292,434                         $10,549,440               $3,742,994

$7.78                             $4,039,358                           $3,103,158                  $936,200
 

     If these figures are accurate, the net cost to taxpayers from raising the wages of county workers and county service contract workers to $8.56/hour would only be approximately $1.3 million.  And at the higher and lower levels for a "living wage", costs would range from $3.7 million down to less than $1 million, depending on the wage level chosen for a living wage.  That assumes that no efficiency improvements result, and that all contractor costs will be passed through to the county.  Both assumptions unrealistically inflate the final cost, so the figures in the "difference" column above should be seen as larger than the likely final cost to taxpayers.

     However, most of the savings to taxpayers goes to units of government other than at the county level.  The federal government captures much of the savings, and the state government likewise saves from medical care savings.  Since most of the taxes collected and disbursed for human service needs occur at the higher levels of government, they are also the primarily beneficiaries of the above mentioned taxpayer savings.

 NET IMPACT ON THE COUNTY BUDGET

    Miami-Dade County would bear the majority of the costs for passage of a living wage ordinance, and it is reasonable for county commissioners and officials to want to know the net cost before considering passage of such an ordinance.  This section attempts to answer that question.
 
    The first task is to determine how much of the contractor's increased labor costs will likely be passed through to the county.  Utilizing previous calculations of the contractor's increased labor costs, and the categorization of those contractors into "high impact", "medium impact", and "low impact" groupings, one can generate general estimates of the amount which will likely be passed through to the county.  Assuming that the high impact firms will pass on all of their labor cost increases, that medium impact firms will pass on half, and that low impact firms will not pass on any of their less than 1% cost increases, one arrives at the cost increases likely to be passed on to the county.  Results are presented in Table 23, for both total costs and annual costs, since the ordinance's effects will be phased in over a three year period for contractors.

Living Wage        Cost Increase      % Passed On      Increase Passed On       Annual Pass On
                                                                                                                         (divided by 3)
$8.56                 $5,731,245.27          36.7%         $2,103,367.00                   $701,122.33

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
 $9.34                $7,742,600.37           42%            $3,251,892.10                $1,083,964.00

$10.11               $9,887,226.20           55%            $5,437,974.40                $1,812,658.10

$7.78                 $4,221,709.94           35.7%         $1,507,150.40                   $502,383.46
 

    If one adds the sums in the last column to the county's increased labor costs as a direct employer, we arrive at the likely total increased costs to the county from passage of the ordinance.  Results are presented in Table 24.  The first year costs in this table include the increased labor costs to both the county and its contractors; for the second and third years, the only added labor costs are those to contractors either newly securing or renewing contracts with the county.

Living Wage         Total increased costs, first year            Second year           Third year

$8.56/hour                          $5,100,939                            $701,122             $701,122

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34/hour                          $8,170,848                         $1,083,964           $1,083,964

$10.11/hour                      $12,809,350                         $1,812,658           $1,812,658

$7.78/hour                          $3,134,505                            $502,383              $502,383

    Left out of these calculations are any increased savings to the county as a direct employer from higher productivity associated with its new high wage policy; therefore the above estimates for the first year cost increase are likely to be overstated somewhat.  On the other hand, as stated earlier, any "ripple effects" which could increase costs are also left out, so the figures will be left as they are.

    Figures given earlier present a 'worst case" scenario of cost increases to the county (given in Table 11) and a "likely case" scenario of those cost increases (given in Table 24).  The report will now calculate a "best case scenario", where the costs would be minimized.  A best case scenario depends heavily on the county's ability to eliminate waste, and to make the bidding for county contracts free from "padding".  As evidenced by the large sums of money paid to lobbyists in the past to influence county officials to win contracts, there frequently is sufficient "padding" in the contracts beyond normal profit rates to divert some of the money to the incomes of expensive lobbyists and still make the contract desirable.  A survey of county staff showed that three fourths of them believe that lobbyists influence the award of county business.  (Greene, 1998, p.3B) Added to this, the unfortunate history in Miami of outright bribery to win contracts indicates that many contracts are let out for substantially more than would be the case in a completely competitive situation.  Highly publicized examples have shown that the amount of "padding" is many millions of dollars.  (Miami Herald, Sept. 18, 1998; Steinback, 1998; Dorschner, 1998)

     Eliminating waste and making contract bidding free from corrupting or wasteful practices is extremely important for the county.  The county has begun efforts in this direction by banning all lobbying of county staff during the time it is weighing bid proposals.  (Viglucci, 1998; Greene, 1998)  While lobbying will continue of county commissioners, and while some of the lobbyists are major fund raisers for the commissioners, the reforms already undertaken are likely to have a beneficial impact.  Likewise, the attempt to attract new bidders on county contractors through seminars and the new Community Small Business Enterprise Program (Miami Herald, August 9, 1998, p. 27) is a positive one which should help make bidding more competitive.

     While it is impossible to know for certain how much the cost of county contracts could be trimmed through measures of this type, a conservative estimate is that between $5-10 million could realistically be saved with even minimal efforts.  This holds true even if it is accepted that there will continue to be both legal and illegal lobbying, political jockeying, and occasional bribery on a much reduced scale.  Estimating $8 million in savings with realistic efforts to eliminate waste, one can arrive at a "best case scenario" of the costs of a living wage ordinance to the county.  Results are presented in Table 25.

Living Wage         Total increased costs, first year         Minus competitive savings         Net Cost

$8.56/hour                      $5,100,939                                       - $8,000,000                  $0
                                                                                                                                (actual savings)

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34/hour                       $8,170,848                                      -  $8,000,000           $170,848

$10.11/hour                    $12,809,350                                     -  $8,000,000          $4,809,350

$7.78/hour                        $3,134,505                                      -  $8,000,000                 $0
                                                                                                                             (actual savings)
 

     It might be noted that merely the cost overruns on just one contract in the past year which the county has ended up paying have been greater than the entire cost of the ordinance at the $8.56/hour level.
 
    Combining Tables 11, 24, and 25, we can construct a table showing the lowest costs, the highest costs, and most likely costs to the county for the first year were a living wage ordinance to be passed.  Table 26 presents the results.

Living Wage        Lowest cost        Highest cost        Most likely cost
      $8.56                     $0                $6,310,232           $5,100,939

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
      $9.34               $170,848           $9,822,133           $8,325,230

     $10.11             $4,809,350        $14,292,434         $12,809,350

      $7.78                     $0                $4,039,358           $3,134,505

     Yet, even these figures are too high, because they calculate cost increases from 1997 wages for county contractors, and 1998 wages for county workers.  Since the ordinance would not take effect until sometime in 1999, the calculations need to be updated.  This can be done from county employment records, and very closely approximated for the estimated numbers of employees on county contractors.  Assuming that workers for county contractors earn wage increases of 2.5% a year during 1998 and 1999, their 1997 wage levels need to be elevated approximately 5% to determine their 1999 wages.  If, on average, they were earning $6.77/hour in 1997, that means they will be earning approximately 34 cents per hour more in 1999, or $707.20 per full time worker over the two year period.  Since there are about 1448 workers below the $8.56/hour level, that translates into 1448 times $707.20, or $1,024,026 that contractor's payrolls have gone up, even in the absence of an ordinance.  Dividing this number by 3 to make it an annual figure, $341,342 must be subtracted from the costs given in the above tables.

     For county workers, assuming the same 2.5% increase per year, precise calculations can be made, since payroll data are available.  If county worker's wages increase 2.5% from 1998 to 1999, the county will already be paying $242,513 more for its part time workers who would be covered by the ordinance, and $210,206 more for its similarly situated full time workers.  That adds up to $452,719 for all such workers.

   If the $452,719 is added to the $341,342 figure, the amount which should be subtracted from the above table of costs is $794,061.  The end result for final costs is presented in Table 27.

Living Wage        Lowest cost        Highest cost        Most likely cost
      $8.56                     $0                $5,516,171           $4,306,878

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
      $9.34                      $0               $9,028,072           $7,531,169

     $10.11             $4,015,289        $13,498,373         $12,015,289

      $7.78                     $0                $3,245,297           $2,340,444
 

Combining the most likely cost from the above table with second and third year costs (calculated using updated wages), Table 28 presents the most likely final costs to the county:
 
 

Living Wage      Total increased costs, first year           Second year         Third year

$8.56/hour                        $4,306,878                         $359,780             $359,780

(AT HIGHER AND LOWER LEVELS THAN CALLED FOR IN PROPOSED ORDINANCE):
$9.34/hour                        $7,531,169                         $742,622            $742,622

$10.11/hour                    $12,015,289                      $1,471,316          $1,471,316

$7.78/hour                        $2,340,444                         $161,041             $161,041
 

 SUMMARY AND CONCLUSIONS

     Using conservative assumptions which likely overstate the actual costs to the county, this study determines that the first year cost (in 1999) from passage of the living wage ordinance would be about $4.3 million, while the second and third years would add an additional $360,000 per year.  This is a total of about $5 million over a three year period.  With a more optimistic view of the county's ability to begin controlling undue influence by lobbyists and artificially inflated contracts, the cost could be reduced to nothing.  A worst case scenario, using 1999 wages and assuming that the ordinance would do nothing but raise costs, would place the final cost at approximately  $5.5 million for the first year and perhaps $1.5 million in each of the two following years.

     The benefits of a living wage ordinance have been enumerated above.  In a variety of ways the affected workers and their families, the county contractors, and the citizens and taxpayers of the county would benefit.  Whether the benefits are worth the most likely $5 million dollar price tag over a three year period is a political question which the county commissioners will have to decide.  Given the large benefits and the rather small price tag, the ordinance appears to have a great deal of merit.  In the happiest of all outcomes, it could be entirely cost free, were it simply connected with efforts to curb waste apparent in the past granting of contracts.  In this circumstance it could be seen as a transfer of wealth from the pockets of high paid lobbyists and wealthy politically connected contractors to the pockets of some of the lowest waged workers in South Florida, a very beneficial outcome.

    It can also be stated that the ideologically inspired arguments against a living wage ordinance appear to have little substance when measured against empirical outcomes.  The research on the Baltimore living wage ordinance demonstrates that the various arguments purporting to show that the very people the ordinance intends to help will actually be harmed have little substance.  Likewise, the belief that a living wage ordinance will frighten away potential investors appears to have little merit, given the booming state of Baltimore's economy after the ordinance's passage compared to its poor state before.  (This of course does not mean that passage of the ordinance was responsible for Baltimore's turnaround; only that there is little evidence that the ordinance provided a "wrong signal" which scared away potential investors.)

      The arguments for and against a living wage ordinance which are based on the more factual issues such as cost are more pertinent to the question of whether such an ordinance would be good for Miami-Dade County.  This report has supplied evidence to help answer questions about such factual issues.   Costs to Miami-Dade citizens and taxpayers are extremely small because they already pay a substantial "hidden subsidy" to maintain the lives of low wage workers and their families through federal and state measures.  Costs to the county could be as low as nothing, if the county could get control of waste and inefficiency.  Without such measures the $4.3 million cost for the first year (1999) is equal to between 1/10 and 2/10 of 1% of the county's $2.75 billion operating budget.  The $360,000 cost in each of the next two years is less than 1/10 of that: between 1/100 and 2/100 of 1% of the operating budget.
 

  TECHNICAL NOTES

     The analysis in this report covers only Miami-Dade County and its service contractors.  Left out is any analysis of the impact of the ordinance on an "airport licensee or similarly situated individual or entity", even though such entities are covered by the ordinance.  Airport licensees were left out of the report because it was impossible to obtain sufficient information on them, and because their impact on the county budget is likely to be minimal.  The only possible impact on the county budget from their inclusion in the ordinance is that licenses might be considered less desirable if the living wage had to be paid to all workers, and therefore the county may collect less from such licenses.  However, this is rather speculative; in any event, the overall impact from licensees is likely to be minuscule compared to the impact directly on the county and on county service contractors.

    The data used to calculate number of employees on county contracts in the (1) landscaping and lawncare industry and (2) temporary help industry did not come from federal Census data, unlike for all other industries.  Lawncare data are not supplied in the 1992 Census of Services, so the author determined the number of employees per $100,000 of business by receiving confidential information from one of the county's larger lawncare contractors on its employment and total receipts for the previous year, and using the ratio for that business as the norm for all lawncare contractors.  In the case of the temp help industry, federal government statistics from the census figures were badly out of line with figures in other industries (most likely because of the way the government collected the data).  Therefore the author used data supplied by Bruce Steinberg, the researcher of the National Association of Temporary and Staffing Services.  Utilizing a proprietary data base of the association,  Mr. Steinberg supplied average daily employment and payroll data for 1997 in the Miami MSA; these figures were used to calculate employment per $100,000 of business in this industry.
 

  ACKNOWLEDGMENTS

     The author of this report wishes to acknowledge an enormous debt to gratitude to Dr. Peter Cattan, who supplied the 1990 Census Data figures and updated them to 1997 wage levels.  Dr. Cattan also calculated the number of workers without health insurance, and provided advice and assistance throughout on sources of data and research design.  Professor Robert Pollin, currently with the Dept. of Economics at the University of Massachusetts at Amherst, was also very helpful when he provided a manuscript copy of his book The Living Wage: Building a Fair Economy (1998) to the author prior to its commercial publication.  Professor Pollin's book was very useful in the preparation of this report.
 
 

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