Abstract
Income and wealth inequality have risen sharply in the United States since the early 1980s, as has been extensively documented by many researchers. But what should be done to address this 35-year trend? Warren Buffett and Thomas Piketty, among many others, advocate raising taxes significantly on wealthy people. Others, such as Lawrence Katz at Harvard and James Heckman of University of Chicago, focus on increasing access to high-quality education at different levels. The authors of When Mandates Work explore in depth a more direct set of policies for reversing inequality in the United States—that is, to significantly raise labor standards and to advance complimentary policies that support union organizing rights and community development measures.
Specifically, the chapters collected in this outstanding volume examine a pathbreaking set of policy initiatives that were enacted in San Francisco between 1996 and 2008. These initiatives included four separate measures to raise the minimum wage to a living-wage standard; the provision of decent health care benefits for most San Francisco workers; a universal paid sick-leave mandate; a municipality-based extension of the federal Earned Income Tax Credit program; and domestic partner benefits equal to those for married spouses. As the editors of the volume, Michael Reich, Ken Jacobs, and Miranda Dietz summarize in the volume’s concluding essay, this combination of mandates succeeded in substantially raising living standards for roughly 12% of working families in San Francisco. They write that these policies for San Francisco “represent a new social compact among businesses, workers, and government” (p. 2).
To a large extent, the evidence presented in this book is based on a series of more technical papers that were published in journals. The volume succeeds in conveying the care and depth of the underlying research studies, while still being highly accessible to a broad audience. For example, the entire volume should be fully comprehensible to both in-the-trenches policy professionals and advanced undergraduates, while still maintaining analytic standards capable of persuading skeptical but open-minded academics.
One question that is always raised by skeptics about such labor market interventions is whether their benefits are counteracted by negative unintended consequences. The most serious such unintended consequence could be that the rise in labor costs generated by these measures will lead to employers shedding workers, which then generates diminishing employment opportunities overall for low-wage workers. Several of the papers in this volume address this issue in detail. For example, Arindrajit Dube, Suresh Naidu, and Michael Reich present a careful survey of the impact of the 2003 citywide minimum wage measure, which raised the minimum for San Francisco workers by 26% above the then California minimum. Their research found no increase in the rate of business closures or employment losses in San Francisco relative to surrounding communities. Similarly, the chapters on the universal paid sick-day mandate as well as the living-wage measures that covered the San Francisco airport employees and home health care workers, respectively, all found no negative employment effects generated by these laws.
Results such as these—which correspond to the results presented in, for example, David Card and Alan B. Krueger’s classic 1995 work Myth and Measurement as well as related follow-up studies by other researchers—do still raise the question: If increasing labor costs through such measures does not generate employment losses, then why is that so? The basic law of demand in economics is unequivocal that raising the price of anything will reduce demand for that thing, all else equal. Nobody is proposing that the law of demand does not apply in San Francisco. It therefore follows that when labor costs rose in San Francisco because of the combination of newly implemented mandates, it would have been necessary for the “all else equal” provision of the law of demand to have been relaxed through some possible set of channels.
In fact, several of the chapters in When Mandates Work document how the increased labor costs were absorbed in San Francisco through means other than layoffs. The two most important alternative adjustment channels were significant declines in employee turnover rates, which translated into higher productivity, and modest price increases, through which the higher labor costs were passed onto consumers. Some of the chapters also suggest that business owners accepted small declines in profitability in some circumstances.
For example, Candace Howes documents how turnover rates fell, then remained consistently low, for several years after San Francisco established both living-wage and health-benefit standards for home health care workers. Similarly, Peter Hall, Ken Jacobs, and Michael Reich’s study of the San Francisco airport living-wage policy found that, among cabin cleaners, the measure led to an average decline in turnover rates of 44% along with an average wage increase of 15%. On prices, Carrie Colla, William Dow, and Arindrajit Dube found that the citywide health care measure had almost no effect on price setting among non-food industries. Among restaurants, however, which include a high concentration of low-wage workers who had not previously received health care coverage, about 25% of firms did raise prices, by an average of about 4%.
To what extent are the experiences with raising labor standards in San Francisco relevant to other cities and states in the United States? When Mandates Work addresses this central question at several points. As the editors document in their introductory essay, all of the measures implemented in San Francisco have also been implemented in various forms in other cities and states. As one important example in which San Francisco was the clear innovator, its success in implementing decent labor standards for home health care workers rapidly spread to other states and California counties. Beyond this, more than 130 cities, counties, and university campuses operate with living-wage mandates, many of which were implemented before the San Francisco measure. Nineteen other localities require equal benefits for domestic partners. New York City, Portland, Oregon, Seattle, and Washington, DC, have paid sick leave requirements.
At the same time, as the editors note, San Francisco has been unique in bringing together a range of measures that provide relatively large benefits to low-wage workers and their families. The editors also recognize that the San Francisco economy has had unique advantages that have undergirded the viability of these policies. Thus, from 1979 to 2009, median income in San Francisco rose from being slightly below the national median to becoming nearly 40% greater than the national figure. These median income gains were driven by the explosive growth of the information technology and the finance industries, which are heavily concentrated around the San Francisco Bay region. The political culture in and around San Francisco has also long been supportive of progressive political initiatives, around the rights of working people and more broadly.
The booming regional economy enabled both businesses and consumers to accept the modestly higher costs generated by the strong labor and community development standards that were advanced effectively by social activists. Critically, the rise in government revenues also facilitated relatively large budgets in San Francisco to finance enforcement of the labor standards. As Miranda Dietz, Donna Levitt, and Ellen Love show, San Francisco’s Office of Labor Standards Enforcement operates with a ratio of enforcement offers to covered employees that is about 30% higher than the federal government level. Enforcement budgets in other municipalities have been typically well below even the federal level, as Stephanie Luce documented in her 2004 study Fighting for a Living Wage. It is therefore not surprising that when other municipalities have passed living-wage laws and related measures, enforcement has been less effective than in San Francisco. Similarly, strong growth industries and rising average incomes in the region made developers much more willing to relent to demands for egalitarian community development requirements than they would have been otherwise.
Reich, Jacobs, and Dietz acknowledge that “addressing inequality-producing growth through mandates to make prosperity broader may be less salient when a city is not growing and is not prosperous” (p. 34). Although elsewhere they conclude that “with . . . careful consideration of local conditions, San Francisco-type standards would work in many other places” (p. 3), the authors do not consider in depth how effectively the San Francisco model is likely to operate in other cities. Working from their findings, however, we can at least surmise that most of the model should transport well to, say, Los Angeles, New York, Chicago, Houston, Seattle, and Boston. But what about Detroit, Cleveland, or New Orleans? This question is fundamental, and other researchers will need to pursue it. When they do so, they will find that When Mandates Work will serve as a critical resource for all such future initiatives.