With 2012 upon us, the next labor market battle, both in the United States and in Europe, will be over the “living wage.” Long backed by both unions and progressive groups, the living wage law looks like a good-old fashioned minimum wage law, with this critical twist: The minimum wage law, which is presently at $7.25 (up from $5.15 in 2006) applies to a wide range of workers in the public and private sector. In contrast, the living wage law is targeted only to those individuals who work in projects that receive some sort of government subsidy. As the New York Times put the point in an impassioned editorial last December, the case for The Fair Wages for New Yorkers Act rests on the simple proposition that a city that doles out “hundreds of millions of dollars a year to private developers” should be in a position to ask them to pay decent wages to the workers whose jobs these subsidies created.

The Fair Wages proposal, which is now before the New York City Council, attempts to do just that. If passed, it would impose one of two living wage requirements on employers who receive $1 million or more in discretionary financial assistance from New York City. Either pay workers $10-per-hour in wages plus benefits, or pay them $11.50-per-hour without benefits. That works out to a wage boost of 58 percent for workers in that category. Needless to say, that basic requirement is riddled with exceptions for various small businesses and the like, all of which raise compliance issues, whose impact is always underestimated by the supporters of new social legislation.

The justification for this proposal is that the parties who receive these government subsidies ought to share them with the workers that they hire. It bolsters the argument by noting that at least one econometric study by the Center for American Progress concluded that cities that had adopted these proposals had the same level of employment growth as those cities without the living wage requirements. The most charitable reading of this finding is that these subsidy programs fail to improve matters because of the many unanticipated consequences they introduce into both public finance and the labor market.  In reality, it will prove far worse.

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