Why does Memphis business need to pay a Living Wage?

The boom years of the 1990s have come and gone. The "New Economy" bubble has burst. But, because logistics and services are such a large part of the regional economy, the local economy remains strong. Unemployment rose a bit, but was never very high, even though getting a job is now more difficult than it was a few years ago. Most job applicants find employment after a search. However, one thing remains constant in the Memphis area: many workers do not earn enough income to allow their families to live well. They do not earn a Living Wage.

The Living Wage is a concept that measures the level of income required for a family to live independent of monthly public assistance: Food Stamps, child care subsidies, and rent subsidies. It is a measure of self-sufficiency.

Why should the business community be concerned about self-sufficiency? After all, most businesses hire at what they consider the market wage. Paying any more would not only seem foolish, but would lead to a competitive disadvantage relative to rivals. But what seems wise and efficient in the short term--paying low market wages--adds up to a multifaceted disaster in the long run. There are three reasons for this, and each of them requires us to step away from a simple market analysis. We need to examine the type of regional society we are trying to build and to make sure that the economic/business component of that society reinforces the overall push to progress.

Three Pluses of a Living Wage

Clearly, the dominant business reason for proposing a Living Wage is that it enhances regional aggregate demand. When common laborers make a low wage, they don't have much to spend. In Memphis, it seems almost axiomatic that when you open a new mall, an old one closes. Why, with a population of over a million people, can't we sustain more shopping centers? Why are they all congregated in the few affluent suburbs in the east and south where population is thin and distances long? The answer is quite clear. Not only do per capita income figures barely reach the national mean, but the Memphis job market is disproportionately concentrated in low wage jobs. In particular, many Memphians work in retail trade, in portions of warehousing, and in aspects of business services where wages and benefits are low and employment is often less than full-time and subject to seasonal turnover. Higher wages across these industries would mean that workers would have more to spend--and the retail trade and business services markets would prosper. If every business is paying higher wages, then no one firm is at a disadvantage in the market. In fact, most businesses stand to gain because they have far more customers than they have employees. For most businesses, revenue increases would outstrip the added costs of higher wages.

The second reason is implied in the first. A Living Wage makes running a business easier. A manager no longer needs to worry that the competitor next door is going to hire labor at $1.00 less per hour and put him out of business. Much of the past decade has been a race to the bottom by business. In order to stay competitive, businesses look for the cheapest labor to keep costs of production down. Of course, with low wages comes a lack of loyalty, sloth on the job, and incredible rates of labor turnover. Again, the benefits of low wages in the short run are eliminated in the long run. When everyone pays a Living Wage, then the emphasis on efficiency shifts from looking for low-wage labor to making current employees more productive. Managers would spend time persuading employees to be more loyal to the company's goals. Technological improvements in production or in providing services to customers would become more important than sweating more unproductive time out of unhappy workers.

Finally, a Living Wage for all workers leads to a better society. Higher wages also mean that workers purchase homes, send their children to school, and save for retirement, so that twenty years later the entire region is more productive and less dependent upon common-labor-type jobs. Workers with higher wages take better care of their families. Workers with high wages don't need social subsidies from Food Stamps, from TennCare, and from various private charity sources. Independence, a characteristic that can be directly traced to income in an urban society, brings benefits, not costs to society. Increased well-being through higher wages for basic jobs will mean that home ownership and home maintenance will improve, educational attainment will improve, saving for retirement will improve, and general civic involvement will improve. Can an extra $2.00-$3.00 per hour do all these things? The answer is a clear yes. The only real difference between residents of the city of Memphis and the city of Collierville is the hourly wage. Everything else is temporary.

A Living Wage

The total amount of a Living Wage is based upon the income it takes to achieve self-sufficiency. It varies depending upon the type and size of a family.

In Memphis, a Living Wage for an adult with one or two children is between $26,128 and $31,284 per year (Table 1). This is a common family configuration for a woman leaving welfare. If she can find full-time employment (40 hours per week, 50 weeks per year), self-sufficiency requires an hourly wage of $13.06 if she has one child or $15.64 if she has two children.

In Memphis, a Living Wage for a family with two working adults and one or two children is $30,990 to $35,130 per year (Table 2). If one adult works 40 hours per week and the other works 30 hours per week (50 weeks per year), then self-sufficiency requires an hourly wage of $8.85 for each worker in a family with one child and $10.04 for each worker in a family with two children.

The Living Wage can look deceptively low if two adults in a family are employed. Another way to look at this is to ask how many hours of labor each week it takes to earn a Living Wage at each wage level. Table 3 provides that answer. A single mother with one child could earn a Living Wage at $7.00 per hour (a typical wage for women leaving welfare) if she worked 75 hours per week in the paid labor force. Similarly, a couple with four children could earn a Living Wage at $8.00 per hour if together they worked 88 hours a week. In other words, a family can attain self-sufficiency in one of two ways: a higher hourly wage or many hours on the job.

In addition to working in the paid labor force, parents also spend many hours each week in unpaid labor at home. The typical female single parent with a job spends 16 hours per week on household labor with one child and 19 hours per week with two children. Working couple parents spend 27 hours per week on household labor if they have one child and 29 hours per week if they have two children.

Finding the Living Wage

The Living Wage concept defines the minimum income required to meet a family's basic economic needs, including payment of taxes. It assumes that all income is earned in the regular labor market. A family's income is considered inadequate if it falls below the Living Wage amount.

Three issues help to define the calculation of the Living Wage:

* The Living Wage changes according to family type, such as one adult earner versus two adult earners and children of different ages. It also changes for various areas of the country. For example, housing costs in Memphis are different from costs in Chicago.

* The Living Wage is only the amount that is required to provide basic self-sufficiency. It does not reflect the costs of the many pleasures of life: eating out, entertainment, a new car, or the regular purchase of new apparel or electronics.

* The Living Wage is based upon the value of the income to the well-being of the family, not the employer. That is, an employer may argue that an employee is not worth the Living Wage to the company; but if the employer pays less than a Living Wage, then the job is not providing for basic maintenance of the worker's family.

Components of the Living Wage

An income that provides for self-sufficiency is made up of the usual components in a family budget. There are seven components to calculating a Living Wage:

1. Housing and Utilities--This calculation includes the monthly rent and utilities on an apartment or house that meets minimum standards of decency. It is likely to have separate bedrooms for adults and for children, a common room, and an operating bathroom and kitchen. The apartment has a heating system and has window air conditioners. Added to the rent is an estimate of utilities and basic phone service. The rent level is the 50th percentile of the 2002 fair market rents for the Memphis MSA published by HUD.

2. Child Care--The cost of child care is calculated for families having young children. In the one-child family, the child is assumed to be less than 6 years old and spending 50 weeks per year in a day care center. For two-children families, one child is assumed to be less than 6 (pre-school) and the other is assumed to be older (in school) and using day care facilities only during the summers and holidays (14 weeks per year). Child care costs used in the living Wage are estimates from the Tennessee Department of Human Services, based upon a survey of day care charges at the 70th percentile in the state's 15 most highly populated counties during 1997-1999.