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May 2001 IBEW Journal

What Is a Living Wage?

Last November the Economic Policy Institute published The Forgotten Workforce, a report by Chauna Brocht that discussed the issue of federal contract workers being paid less than a living wage. The concept of a living wage is based on the principle that anyone who works full-time should be able to support a family above the poverty line. Living-wage ordinances (which have been enacted in more than 50 localities throughout the United States) provide for varying pay rates. These pay levels are typically set at a rate needed for a full-time, year-round worker in those localities to earn enough to bring a family of four out of poverty. The wage rates specified by living-wage ordinances range from a low of $6.25 an hour in Milwaukee, Wisconsin, to a high of $12.00 in Santa Cruz, California. Many ordinances also contain provisions regarding benefits (such as health insurance and paid vacation), labor relations, and hiring practices. At the federal level, the full-time wage needed to support a family of four at the poverty line ($17,050 in 2000) is $8.20 per hour.

A living-wage ordinance applies to certain employers and covers a specific set of workers, usually workers employed by businesses that have a contract with a city or county government, or who receive economic development subsidies from the locality.

Isn't the Minimum Wage Sufficient?

No. The minimum wage enacted by the U.S. Congress has not been sufficient to support families since the early 1980s. According to an October 2000 report by the AFL-CIO Department of Public Policy (Living Wage Laws: Answers to Frequently Asked Questions), during the 1960s and 1970s, the annual earnings of a full-time, year-round minimum-wage worker about equaled the poverty level. However, the minimum wage remained unchanged at $3.35 an hour from 1981 until April 1990 while the cost of living steadily increased. As a result, minimum-wage earnings declined below the poverty level by a significant margin. And increases over the last several years have not restored the lost value of these wages. Today, full-time, year-round minimum-wage workers earn $5.15 per hour, nearly 20 percent below the poverty level for a family of three.

What About Other Laws that Prescribe Wage Standards?

In 1999 only an estimated 32 percent of federal contract workers were covered by some sort of law, such as the Service Contract Act and the Davis-Bacon Act, that requires that they be paid at least a prevailing wage. Under these federal laws the prevailing wage is determined by the U.S. Department of Labor. The prevailing wage is usually defined as the median wage (the wage at which half of all workers earn more and half earn less), or the average wage for each occupation and locality.

However, contrary to the popular wage myth that prevailing wages are usually union wages, prevailing wages may be set in some areas as low as the minimum wage. For example, the DOL has set its minimum pay rate at a level below $8.20 an hour for workers covered by the Service Contract Act in 201 job classifications. In addition, many workers are not covered by these laws. As a result, despite the wage protections mandated by the Service Contract Act and the Davis-Bacon Act, an estimated 11 percent of the federal contract work force earned less than $8.20 an hour in 1999.

According to data from fiscal year 1999, an estimated 162,000 full- and part-time federal contract workers earn less than $8.20 an hour and would potentially be covered by proposed living-wage legislation. An additional 59,000 workers earning as much as a dollar an hour more than the poverty-level wage could also benefit from the spillover effect of living-wage legislation.

Wage Myth: All Government Jobs Pay Well

Government agencies have been pressured to reduce the size of their work forces, which is accomplished in many cases by contracting for goods and services to private businesses. One of the incentives for privatization is that it should encourage competition among companies to provide government with services, which, ideally, should lower the cost of providing these services. Contractors have been allowed to set their wage levels almost at will, so most of their contract workers aren't paid wages and benefits comparable to direct federal workers.

Government can save money by contracting work to private-sector employers who pay less than a living wage and do not offer benefits comparable to those available to workers employed directly by the government. But should government - at any level - contract with or subsidize employers who pay poverty-level wages? Indeed, by condoning the payment of poverty-level wages by their contractors, local, state and federal governments undermine any anti-poverty programs they develop. In many cases, poorly paid government contract workers must subsidize their poverty-level-and-below wages with government services, such as food stamps and subsidized housing, to support their families.

Who Are Government Contract Workers?

Private-sector workers (including federal contract workers) earning less than a living wage are mostly female, adult, full-time, nonunion workers, and are disproportionately minorities. They include job classifications such as accounting clerk, bus driver, child-care attendant, home health care aide, corrections officer, food service worker, mail clerk and receptionist.

Although women comprise 46 percent of the total private-sector work force, they represent a large majority (59 percent) of private-sector workers paid less than $8.20 per hour. Blacks comprise 11 percent of the private-sector work force, but 16 percent of workers earning less than $8.20 per hour. Hispanics comprise 12 percent of the private-sector work force, but 19 percent of those earning less than a living wage. An overwhelming majority of private-sector workers earning less than $8.20 an hour are adults aged 20 and older. About 68 percent are employed full-time. Only about 6 percent of these workers are union members.

Contract Workers Need a Raise

The living-wage movement was born out of frustration with the U.S. Congress's failure to enact a minimum wage that lifts families out of poverty. The federal government does nothing to ensure that contract workers employed with federal funds are paid a living wage. Only one-third of contract jobs are covered by a wage standard, and even the standards that cover these workers don't require that they are paid a living wage. Living-wage legislation would ensure that all federal contract workers could support their families above the poverty line.

Rep. Luis Gutierrez (D-IL) has proposed legislation (H.R. 917) that would require businesses to pay workers employed on federal contracts a living wage, defined as $8.20 an hour. As Rep. Gutierrez's bill is currently written, some workers would be exempt because they work for small businesses and nonprofits. If federal living-wage legislation were expanded to include direct federal employees, an additional 274,000 federal workers would also receive a wage increase, based on analysis of 1999 numbers.

Many proponents of privatization tout the advantages of "fiscal prudence" in the stewardship of government money -  taxpayers' dollars. They turn a blind eye to the fact that this fiscal prudence comes at the expense of low-paid workers, and to the benefit of the contractors. Ironically, in some situations privatization actually has increased the cost to government of certain goods and services. Another irony is that when the House and Senate consider congressional pay raises, members cite the burdensome expenses of living in Washington, D.C., and having to maintain two residences - one in the Nation's Capital and the other in their home districts. But they give no thought to the millions of working poor, thousands of whom work for the federal, state and local governments, who manage day to day on poverty-level-and-below wages.

By applying a living wage to these workers, government could possibly remove them from public assistance (food stamps, housing subsidies, etc.) and actually gain revenue from them, as they pay their share in local, state and federal taxes.

Fact: In 1999 the House and Senate increased congressional salaries. In addition, members of Congress have long enjoyed benefits such as health insurance and generous pensions.

Fact: Federal contract workers are less likely than direct federal employees to enjoy benefits like health insurance and pension plans.