September 6, 2002

Study: City's living wage proposal would boost federal, state coffers more than worker paychecks

Full Report (pdf)

A living wage proposal being considered by the Sacramento City Council would lift some families out of poverty, but would ultimately cost local taxpayers more than it benefits low-income working families, according to a study by two California State University, Sacramento economics professors.

Suzanne O'Keefe and Stephen Perez say that raising the wages of workers employed by city contractors would save the state and federal governments money at the expense of locals. That's because the increased wages would reduce workers' eligibility for benefits such as food stamps and the earned income tax credit. The higher wage would also increase workers' income taxes and social security taxes.

As one example, the report says increasing the pay of a single parent with two children from minimum wage to $10 an hour would cost an employer $6,997, but would give the family just $2,824 more purchasing power each year. Meanwhile, it would save the state and federal governments $3,676.

"It's a real dilemma," O'Keefe says. "If we didn't have the federal and state programs, then something like this would make much more sense."

The researchers suggest that there are other options, such as city-subsidized childcare, health insurance or a local earned income tax credit, which might be better. These benefits help workers without lowering their state and federal assistance. In other words, they prevent substituting local money for federal and state social programs.

"The living wage is more a political question than an economic one," O'Keefe says. "It would make workers less reliant on social programs, but the cost would be borne by local employers, taxpayers and consumers. Other approaches could more effectively help the families the city wants to help, and for less money."

The study, "A Living Wage for Sacramento: Assessing Benefits and Costs," is intended as an overview of the issues surrounding the living wage proposal. It analyzes various wage levels and family circumstances, and includes information about other living wages in California cities.

The study was funded by the CSUS Regional Development Initiative as a service to the community. The City of Sacramento will soon receive a living wage report it commissioned with Economic Research Associates of San Francisco. The city council is expected to debate the living wage proposal after receiving that report.

The full CSUS study is available online at www.csus.edu/indiv/o/okeefes. Media assistance is available at (916) 278-6156.

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