Measuring the Impact of Living Wage Laws: A Critical Appraisal of David Neumark's How Living Wage Laws Affect Low-Wage Workers and Low-Income Families

Abstract

Drawing on data from the Current Population Survey (CPS), David Neumark (2002) finds that living wage laws have brought substantial wage increases for a high proportion of workers in cities that have passed these laws. He also finds that living wage laws significantly reduce employment opportunities for low-wage workers. We argue, first, that by truncating his sample to concentrate his analysis on low-wage workers, Neumark's analysis is vulnerable to sample selection bias, and that his results are not robust to alternative specifications that utilize quantile regression to avoid such selection bias. In addition, we argue that Neumark has erroneously utilized the CPS data set to derive these results. We show that, with respect to both wage and employment effects, Neumark's results are not robust to more accurate alternative classifications as to which workers are covered by living wage laws. We also show that the wage effects that Neumark observes for all U.S. cities with living wage laws can be more accurately explained as resulting from effects on sub-minimum wage workers in Los Angeles alone of a falling unemployment rate and rising minimum wage in that city.

The effects of living wage laws on low-wage workers and low-income families: What do we know now?

“…The CPS data do not provide large enough samples A third criticism is that the CPS data -which we also use in this study -do not deliver sample sizes sufficiently large to detect effects of living wage laws (Brenner et al, 2002;Pollin et al, 2008). But the calculation used to make this argument is in error.…”

“…Neumark and Adams focus attention on models estimated for the workers in the bottom decile of the wage distribution. Brenner et al (2002) argued that this approach leads to spurious evidence of living wage effects, and that a quantile regression approach should be used to avoid this bias. They then estimated a quantile regression for the 10th percentile, with a striking difference in results.…”

The economic impact of living wage ordinances

“…Indeed, one of the great weaknesses of the "difference-indifference" methodology is that it is unable to accurately separate the effects of different policy interventions if their timing coincides. As Brenner et al (2002) have argued, increases in the minimum wage are a much more plausible source of the effects which Neumark and Adams have attributed to living wage laws, particularly given the large number of workers earning exactly the minimum wage in their sub-sample of the CPS. Ultimately, the combination of these methodological and empirical problems makes it impossible to draw any policy conclusions, either positive or negative, from Neumark and Adams' research.…”

“…All business assistance cities were indeed enforcing their laws in the sense that they were monitoring economic development projects to see if any fell under the strictures of the living wage law. However, except for San Antonio, TX, Brenner et al (2002) concluded that no business assistance cities had actually had a case where the law was applied to an actual business assistance recipient. 8 Unit-cost bids are typically submitted as an hourly rate for services performed, such as for security guard services or temporary office assistance.…”

The Impact of Living‐Wage Ordinances on Urban Crime

“…For example, based on a survey of city contractors in Chicago, Tolley, Bernstein, and Lesage () estimate that slightly more than one‐third of employees in covered businesses would be impacted by the living wage ordinance applied to contract workers. Finally, Brenner, Wicks‐Lim, and Pollin () find the enforcement of business assistance ordinances varies greatly between cities and question whether the actual coverage is as large as the estimates in Neumark and Adams ().…”