Patricia A. O'Malley
Social Policy & Programs Consulting    ~    Community Matters
P.O. Box 97803    ~    Pittsburgh, PA  15227   ~    412-310-4886    ~
Copyright Patricia A. O'Malley    ~    All rights reserved
Established 1993

Patricia A. O'Malley

Social Policy & Programs Consulting

Training and Services for agencies working toward social and economic justice

Government Wage Standards Have a Long History
And a Great Track Record
April 22, 2010

Legally mandated wages – minimum wage, prevailing wage, and living wage laws – are not new concepts. They’ve been applied for more than a century, have raised the living standard for countless millions of workers, and brought fresh revenue to businesses and governments alike.

Recently, Pittsburgh and Allegheny County Councils both enacted prevailing wage laws for some local workers. Since the industrial revolution in the 18th century, there has been debate over whether the government or the market should set wages. Labor unions throughout the world have been the primary advocates of minimum, prevailing, and living wage legislation. This is a brief outline of those wage standards and their effects.

Minimum wage
The minimum wage is the lowest hourly wage that employers can legally pay to workers.

New Zealand enacted the first minimum wage in 1894. The Fair Labor Standards Act established the first minimum in the US – 25 cents per hour – in 1938, for workers engaged in interstate commerce. It has been raised 22 times since then, and is now $7.25. Approximately 3.5 million people in the US earn the minimum wage.

A person who works 40 hours per week for a full year at minimum wage earns $15,080. For comparison:

  • The 2009 poverty threshold for a family of three is $17,268.
  • The US median family income in 2008 was $52,029 
  • The Pennsylvania cash welfare benefit for a family of three is $421 per month.
  • The maximum monthly food stamp allotment for that family is $526.That’s a total of $17,676 per year – only $408 above poverty level.

Prevailing wage
The first prevailing wage law was enacted in Kansas in 1891. 

Now 31 states, including Pennsylvania, have such laws.

Prevailing wage law requires employers to pay their employees the established wage for all such workers in a particular industry, in a specific geographic region. It applies to projects financed by government funds. The federal Davis Bacon Act has required the prevailing wage in federally-funded construction projects since 1931. Prevailing wage provisions are usually part of local community benefits agreements.  The wages are determined by the local union wage for the occupation, by a mathematical formula established by law, or can be the average wage for the occupation in the area.

The city and county laws extend that requirement to all new development projects funded by local government dollars and all businesses operating under government contracts. According to the Pittsburgh Post-Gazette,  “The measure sets minimum pay standards for janitorial, grocery, hotel, and food-service workers employed at businesses that will benefit from county development assistance.”

Given the fluid nature of prevailing wage employment, there are no reliable statistics on the number of workers receiving prevailing wage rates. However, the Fiscal Policy Institute published an extensive study of the economic benefits of prevailing wage laws.

While opponents of prevailing wage argue that it drives up construction costs, such a view ignores the full range of implications for construction companies, worker training, safety, and the broader impact on economic development.

Arguments against prevailing wage often are rooted in a simplistic view that equates higher wage rates with higher overall construction costs and stops there. This approach misses far more than it comprehends. In reality, considerable research shows that wage standards in general, and prevailing wage regulations in construction in particular, have several economic positive benefits.

Costs: Prevailing wage does not raise overall costs since higher construction wages are usually offset by greater productivity, better technologies, and other employer savings.

  • Skills: Prevailing wage increases the supply of apprenticeships and worker skills.
  • Worker safety: Prevailing wage reduces construction injuries and workers compensation costs.
  • Health and pension benefits: Prevailing wage requirements raise health and pension
  • coverage for construction workers.
  • Cost shifting to taxpayers: Prevailing wage minimizes the shifting of health coverage and other costs to taxpayers and other employers and workers.
  • Economic opportunity: Prevailing wage improves wages and economic opportunities for less-educated workers.
  • Curbing harmful competition: Prevailing wage minimizes a destructive economic “race to the bottom”.
  • Economic development. Prevailing wage promotes “high-road” local economic
  • development.

Living wage
The living wage describes the minimum hourly wage necessary for a worker to purchase adequate food, clothing, shelter, transportation, and health care, and to benefit from a standard of living above poverty level.

It is a central principle of Catholic social teaching and progressive economics. Pope Leo XIII first presented the concept in his 1891 encyclical, Rights and Duties of Capital and Labor. Popes John Paul II (1999) and Benedict XVI (2005) both affirmed this position in their own writings.

Article 23 of the United Nations Universal Declaration of Human Rights, adopted in 1948 by all UN members – including the United States, endorses the concept of a living wage.

The Living Wage Project at Pennsylvania State University designed a Living Wage Calculator.  It lists the living wage for a household of two adults and one child in Allegheny County as $21.28, or nearly three times the minimum wage.

Pittsburgh city councilor Ricky Burgess introduced a living wage bill this week, setting the standard at 150 percent of the minimum wage, or $10.87 per hour for all work performed by employees of the city, its authorities, and its contractors. That’s only about half of what’s required for a realistic living wage.

The modern living wage campaigns began as a partnership between labor and religious leaders in Baltimore in 1994. Now, there are more than 140 living wage ordinances in cities throughout the US, including Baltimore, Boston, Philadelphia, Detroit, Santa Fe, Albuquerque, Los Angeles, St. Louis, and San Francisco. As usual, Pittsburgh is arriving late to the party.

If corporations had their way, we would all still be making a quarter an hour. Their incessant whining that minimum wage increases put companies out of business just doesn’t hold water. If they did, then the American fast food industry would have died out long ago. In fact, many traditionally minimum wage employers now pay starting wages above the minimum. And they’re still making profits.

The facts are that higher wages benefit the economy. Workers spend that money on food, clothing, shelter, furniture, transportation, recreation, and vacations. That creates jobs in those industries. Then those workers pay taxes, rather than receive public assistance benefits. And isn’t that what we all say that we want? It’s time to put our money where our mouth is.

Once again, If you want peace, work for justice.

For more information

AFL-CIO: Prevailing Wages

Fiscal Policy Institute

Contact Pat to get email notice of all new Community Matters articles.