Policy Documents

Living Wage and Earned Income Tax Credit: A Comparative Analysis

Mark D. Turner and Burt S. Barnow –
January 1, 2003

In recent years, a number of communities have adopted “living wage” ordinances that require classes of employers to pay wages ranging from 150 to 300 percent of the federal minimum wage. Living wage ordinances vary considerably across the country in coverage, the wage level mandated, and possible add-ons such as health care coverage mandates. What the living wage programs generally have in common are (1) a requirement to pay workers a wage based on the poverty threshold, usually for a family of four, and (2) employers covered by the statute are usually only those who receive contracts from the government or receive some favorable treatment from the government (e.g., a tax abatement or zoning change). As of June 2002, 82 jurisdictions had living wage ordinances. Living wage mandates differ from a traditional minimum wage in that the living wage is, at least theoretically, tied to meeting some standard of living and only applies to employers who receive some benefit from the government.

There are a number of issues of policy interest that can be explored regarding the living wage, and a number of efforts have been undertaken to address these issues. Recent studies have looked at the impact of living wage statutes on employment, the impact on government services, and the effects on uncovered workers. In this project we compare the target efficiency of living wage ordinances with an alternative, the earned income tax credit (EITC), in terms of each strategy’s ability to help poor and near-poor families and avoid benefiting more affluent families.