From the August 2002 issue of Entrepreneur

Over the past six months, the living wage movement, which promotes establishing wage floors higher than the prevailing minimum wage, has been transformed from a growing force into a juggernaut that could affect all entrepreneurs. And as the movement gains power, many business owners have begun examining whether living wages actually benefit the poor and are now reconsidering their salary structures.

Living wages are set by municipal or town governments; among the highest living wages is the one put in place by the city of Santa Monica, California, at $12.55. Though the living wage movement has existed since the early 1990s, until this year municipalities had only enacted legislation that mandated living wages for government contractors or large employers. But in March, New Orleans passed a landmark law that covered all businesses, and living wage proponents expect activists in other metropolises to follow the Big Easy's lead.

Some entrepreneurs who already pay living wages are happy with what higher pay has done for their businesses. "I can't afford not to pay employees decently. The higher wages reduce turnover, saving me huge hiring and training expenses," says Judith Katz, the head of The Kaleel Jamison Consulting Group Inc., a consulting group in Troy, New York, that has vowed to pay its employees more than the minimum. Katz claims production is more efficient when employees aren't so worried about their finances, making up for any burdens of paying higher wages.

Research bears Katz out. Analyses by Jared Bernstein of the Economic Policy Institute show that living wages lead to more efficient service. Meanwhile, a recent California study concluded that the presence of living wage legislation does reduce overall poverty levels, though it also results in some job loss among lower-income people.

Beyond statistical results, some entrepreneurs find paying higher wages also brings them personal satisfaction. "If people who work for you are struggling to survive, they can't focus, but we have a stable work environment that people, including myself, enjoy coming to," says Barry Hermanson, founder of Hermanson's Employment Services, a San Francisco temporary employment firm.

Not everyone is convinced of the benefits of such measures, however, and several states have even placed bans forbidding the enactment of living wage ordinances, due in part to pressure from business groups. Still, Bernstein says, entrepreneurs seem to be gradually accepting wage legislation rather than fighting it, particularly because there's substantial public support for new regulations. What's more, politicians are getting involved, a sure sign of a hot issue: Rep. Luis V. Gutierrez (D-IL) is fighting to force all federal contractors to pay living wages.

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