A law passed by the Los Angeles City Council in 1997 mandating a "living wage" for employees of companies contracting with the city produced little of the job loss its critics predicted, but also failed to significantly boost the number of employers offering health plans, a major goal of the ordinance, a study issued June 2 found.

However, the study, which its authors claimed to be the most definitive analysis to date of the impact of living wage policies, also found that more than 9,500 workers saw their pay increase as a result of the 1997 law.

Moreover, the report, which used a control group survey of non-living wage companies in industries similar to those covered by the law in order to isolate the effects of the living wage ordinance, found that employers experienced lower employee turnover and absenteeism after the law went into effect.

Los Angeles became one of the first major cities to pass a living wage law, which required service contractors, firms that operate concessions on city property, including Los Angeles International Airport, companies that lease city properties, firms receiving $1 million or more per year in economic development, and subcontractors of any of those categories, to pay employees at a mandated "living wage" level, or a lower wage level if they contribute to employee health coverage.

Although the law was passed in 1997, individual companies became subject to its provisions only when entering a new agreement with the city, or if their existing contract was renewed, modified, or extended. Consequently, it took the ordinance time to cover all the workers targeted, the study said.

Currently, affected employers can choose between paying workers $10.03 per hour, or $8.78 per hour if they also contribute $1.25 an hour to an employee's medical coverage.

The study, Examining the Evidence—The Impact of the Los Angeles Living Wage Ordinance on Workers and Businesses, was based on three random samples, one which surveyed 82 companies affected by the law between summer 2001 and spring 2003; another which conducted in-person surveys of 320 affected workers between spring 2001 and summer 2003; and one conducted in spring and summer 2002 of some 210 non-living-wage companies, which served as a control group, the study said.

The report's authors were David Farris, professor of economics, University of California Riverside; David Runsten, associate director of the North American Integration and Development Center, University of California Los Angeles; and Carolina Briones and Jessica Goodheart, both of the Los Angeles Alliance for a New Economy, a low-income worker advocacy group that led the fight for the living wage ordinance in Los Angeles. Although many opponents of living wage laws warned that adoption of a mandate for much-higher-than-minimum-wage pay would, in fact, hurt the workers the ordinances were intended to help by leading to large job cuts, 81 percent of employers surveyed said they did not cut jobs as a result of the ordinance, and the overall job loss totaled about 112, or less than 1 percent of the estimated 22,000 jobs at 475 firms covered by the law, the report observed.

Farris and Runsten in a June 1 teleconference said employers were able to partially offset the higher cost of employment with savings resulting from lower turnover and absenteeism; they also trimmed some fringe benefits and overtime, passed some added costs to the city through their contracts, or absorbed the costs themselves, Runsten added.

Average Pay Raise of $1.48 Seen

The law led some 148 companies to raise pay by an average of $1.48 an hour, or about 20 percent, for an estimated 7,735 workers who were earning less than the "living wage" minimum at the time it took effect, the study found. Moreover, some 40 percent of firms gave another 1,849 workers non-mandated "indirect" pay raises, in order to maintain the differential in wages between higher-and lower-paid employees, it added.

The study also found that a large majority (86 percent) of workers affected by the law were full-time workers, while only 4 percent were teenagers. About 57 percent of affected workers were women, half were Latino, another 30 percent were African American, and some 16 percent were single parents, it added.

At least 70 percent of the families affected by the law were low-income, Runsten said. In an interview, Farris told BNA that it was important to document that the benefit of the ordinance went largely to older workers in poor households, because some literature on raising minimum wage levels has indicated that the benefits of such increases often go disproportionately to teenagers from middle-class families working part time.

Health Benefits

The law was less successful in prompting affected firms to initiate health benefit plans if they were not already providing them, the report found. In fact, an analysis of the living-wage firms and the control group of non-living wage employers "showed no significant change in the percentage of affected firms that provided employer-paid health benefits before and after the living wage," the study noted.

Some affected companies that already were providing health benefits to low-wage workers extended them to more workers, thus improving benefits for an estimated 2,236 employees, it added.

Nevertheless, the lack of new health plans among affected firms "suggests that the tax savings provided by the $1.25 differential is not a sufficient incentive to induce firms to initiate health coverage," the authors wrote.

Almost one-third (31 percent) of affected workers are uninsured, and another 7 percent rely on public health insurance. More than half affected workers' children either rely on public insurance programs, or are uninsured, the study found.

The majority of affected companies comply with the ordinance by offering the higher wage, and the most frequently cited reason for that is that the covered employees prefer the higher wage, the report found. However, almost 60 percent of affected workers earning the higher rate said they would take a $1.25 an hour pay cut in exchange for free individual benefits, and one-third said they would take a $2.50 an hour pay cut in order to receive family health insurance at no cost, the study added.

But the cost of providing such coverage might be an impediment to employers wanting to offer health benefits, the report found. Based upon a 2003 survey by the Henry J. Kaiser Foundation, an employer would have to dedicate $1.49 an hour toward health insurance in order to cover a full-time worker, and about $4.09 an hour to provide that same worker with family coverage, the study said.

"Indeed, many affected employers cited the difficulty of finding a low-cost plan as a reason for not offering health benefits to their workers on living wage contracts," the authors said.

The report is available at www.LosAngelesLivingWageStudy.org.