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