The Economic Effects of Living Wage Laws

Abstract

Nearly 100 cities and local governments in the United States passed living wage laws since the mid-1990s. The central goal of living wages is to reduce poverty, yet they may fail to do so because of disemployment effects. We summarize and critique the existing research on the effects of living wages on wages, employment, and family income, emphasizing common findings, points of disagreement, and important questions for future research. The evidence thus far points to wage increases as well as employment losses for the least skilled—although thereis disagreement about the employment effects—but, on net, some beneficial distributional effects. The evidence also points to efficiency wage–type effects of living wage laws that may offset some of the adverse impacts on employers.