Paying a Living Wage Is Good for Business

‘It is estimated that each minimum-wage job created costs $8,600 annually in food stamps, MediCal and other entitlements that low-wage families must rely on to make ends meet.’

We all have heard the recent talk about the troubled business climate in Los Angeles, with politicians and business leaders scrambling to find ways to make our city more business-friendly. Underlying the specific worry about the climate, however, is a more generalized one: fear that our city is being dragged down by poverty. Businesses and taxpayers alike are fearful about what poverty and its symptoms--crime, deteriorated neighborhoods, riots--do to L.A.’s reputation and livability.

Central to improving our city’s business climate is a concerted attack on poverty. This doesn’t mean welfare or charity. The fact is that the majority of the poor work; they simply don’t get paid enough to live at a decent standard. Nearly half of all wage earners in Los Angeles make less than $20,000 a year. Nearly a fifth of full-time, full-year workers have incomes below the poverty line, which is only $15,600 for a family of four. A full-time, minimum-wage earner makes only $8,800 annually in a county where the average rent on a two-bedroom apartment is $855 a month.

This is bad for the business climate. It’s bad because people who can barely make ends meet aren’t putting money into the economy. They aren’t buying cars or homes or computers or compact discs, lawn furniture or vacations. They’re certainly not buying health insurance.

Los Angeles is the most uninsured city in the United States. In 1992, 35% of the county’s under-65 population had no medical coverage. They can’t afford it and their employers don’t provide it. The result: 2.2 million people, the vast majority full-time workers, must resort to costly emergency services for primary care.

It is estimated that each minimum-wage job created costs $8,600 annually in food stamps, MediCal and other entitlements that low-wage families must rely on to make ends meet. We all end up subsidizing businesses that fatten their bottom line by scrimping on the benefits they offer their employees.

It became unfashionable during the 1980s for companies to talk about fair wages, decent benefits, loyalty to the work force. Now the discussion has begun to shift its tenor as Americans work harder than ever for less return and less security. We now hear talk about the way practices such as downsizing undermine not only individual careers but the social contract between businesses and their employees and the communities where both reside; witness Newsweek referring to “corporate butchers” on a recent cover. The cutthroat approach is coming under more scrutiny, as well it should. As we fret about our city’s business climate, we need to examine the practices of companies that refuse to pay a decent wage with benefits. Businesses that receive public subsidies deserve an especially close look.

As business people, we certainly favor subsidies from local government to create jobs--revenue bonds, abatements, tax breaks. But we don’t support subsidies for businesses that compete unfairly by underpaying their workers.

It makes sense for Los Angeles to require that businesses that receive subsidies or contracts from the city be held to a wage and benefit standard. The standard should guarantee taxpayers a fair return instead of making them pay up front to attract jobs, then pay again on the back end when the jobs created force employees to rely on public assistance.

There is some fear that requiring L.A. companies to pay decent wages and benefits may cause them to relocate someplace where labor is cheaper.

Reputable studies, along with our first-hand experience, suggest that this fear is unfounded. Most businesses base their decision about where to locate on the quality and availability of the work force and the local infrastructure available.

A study commissioned by the Council of State Governments found that the most important factors in choosing a business location included quality of life, education and skills of the work force, proximity to markets and access to infrastructure. The ability to pay substandard wages was not on the list.

As we look at ways to improve our business climate, we need to make one particular concept central: Paying a living wage is good business.