Docstoc

The Living Wage

Document Sample
The Living Wage Powered By Docstoc
					Impact of the Eugene Living
Wage on Disposable Income


   Tatiana Raterman and Mark Allen
  What is a Living Wage?
– A living wage is a policy through which wages
  are increased for certain workers in a city or
  county above the minimum wage.

– It is based on an estimate of what people need
  to support themselves and their families.

– Contains particular guidelines as to who will be
  covered.
     Eugene’s Living Wage Proposal
   Proposed by the Eugene Springfield Solidarity
    Network (ESSN)
     – Hourly wages of $11.42 with benefits and $14.28
       without benefits.
     – Covers all regular and temporary employees
       working over 600 hours per year.
     – Covers all contractors with contracts totaling more
       than $10,000 in 12 months.
     – Covers financial aid recipients of more than
       $25,000 in a 12 month period.
                   Literature Review
Common Concerns of a Living Wage
   Disemployment, crowding out of low-skilled workers in the living wage
    jobs, the ripple effect of wages, decreased competition for city
    contracts, and others….
     – Adams, Scott, and Neumark, David. The Economic Effects of
       Living Wage Laws: a Provisional Review . National Bureau of
       Economic Research, Cambridge, MA, June 2004.
     – Chouinard, Lauren. Living Wage Analysis. Central Services,
       Human Resource & Risk Services, Eugene, OR, December 2002.

   What has not been sufficiently discussed: how well targeted and
    efficient a living wage is.
     – Toikka, Richard, Yelowitz, Aaron, and Neveu, Andre. The “Poverty Trap”
       and Living Wage Laws. Economic Development Quarterly, 19(1), pp. 62-
       79, 2005.
Our Focus: The Effect of Marginal Tax Rates
   The MTR measures the fraction of the living wage-induced change in
    earnings that is kept by the household after taxes and benefits are
    considered.

    – After wages increase, what portion of comprehensive disposable
      income is kept by the family?

    – We consider benefits including EITC, WIC, Food Stamps, Section
      8 Housing Assistance, LIEAP, and Oregon Health Plan.

    – The Effect of Marginal Tax Rates on the Impact of the Living
      Wage depends on families’ participation in these programs.
                          Methodology
   Our analysis is based specifically on Oregon data.

   The general idea is to analyze the significance of the marginal tax rates of
    welfare programs for the impacts of living wage laws on economic well-
    being of affected families.

     – In other words, how much of an increase in earnings from a living wage ends
       up in a family’s pockets for them to spend.

   First we analyze the living wage impacts on economic well-being of 3
    representative families who participate actively in welfare programs, then
    observe whether our results are confirmed by the data analysis.

   Data Analysis
     • Draw a sample of individuals in a time series using the CPS.
        - Identify who might be affected under each proposed living
           wage.
     • Construct income tables for households.
        - These will differ in whether or not the families
           participate in public transfer and tax subsidy programs.
                 Data Analysis….. continued

   Assign each family in our sample to a particular schedule.
     – These associate the change in comprehensive disposable income
       with change in gross earnings.


   Divide our sample into three categories: 1) single person, childless
    families 2) Single parent families 3) Married couples with or without
    kids.

   In each sub-sample, compute a marginal tax rate for each family and
    calculate a general (an average value) MTR for each sub-sample.

   Conduct an analysis of the impact of the MTRs on the effectiveness
    of the proposed living wage ordinance in raising the standard of living
    for the affected families.
Model of Living Wage Impacts on Three
           Typical Families
   Family    of four with 1 primary earner.
 – Income increases from $8.00 per hour to $11.42 with
   benefits or $14.28 per hour without benefits.
      Comprehensive Disposable Income increases
      from $27,927.20 to $28,543.20 with benefits or to
      $29,083.20 without benefits.

     They suffer from a 0.91 marginal tax rate. That is
     they lose 91% of their increased gross earnings
     and only retain 9%.
                      Disposable Income
Benefits and taxes     Annual Income/Value of Benefits
Gross Annual Income    $16,000.00    $22,840.00    $28,560.00

+ Food Stamps          $4,080.00     $2,016.00     $0.00

+ Oregon Health Plan   $928.00       $0.00         $0.00


+ Other Healthcare     $0.00         $928.00       $0.00


+ Section 8 Housing    $2,496.00     $444.00       $0.00


+ LIEAP                $153.00       $153.00       $153.00

+ WIC                  $445.20       $445.20       $445.20

- Net Taxes            -$3,825.00    -$1,717.00    $75.00

Disposable Income      $27,927.20    $28,543.20    $29,083.20
 Model of Living Wage Impacts on Three
            Typical Families
 Single   person household
  – Expect a relatively large gain from the increased
    wages.

  – Comprehensible Disposable Income increases from
    $15,119.00 to $19,476.00 with benefits or to
    $23,589.00 without benefits.

  – They encounter a .36 marginal tax rate for wages with
    benefits and .33 marginal tax rate without benefits.
                 Disposable Income
Benefits and taxes     Annual Income/Value of Benefits
Gross Annual Income    $16,000.00    $22,840.00    $28,560.00

+ Food Stamps          $0.00         $0.00         $0.00


+ Oregon Health Plan   $0.00         $0.00         $0.00

+ Other Healthcare     $0.00         $232.00       $0.00

+ Section 8 Housing    $921.00       $0.00         $0.00

+ LIEAP                $153.00       $0.00         $0.00

+ WIC                  $0.00         $0.00         $0.00

- Net Taxes            $1,955.00     $3,596.00     $4,971.00

Disposable Income      $15,119.00    $19,476.00    $23,589.00
Model of Living Wage Impacts on Three
           Typical Families
A   single mother with one child
 – Suffered the worst from an increased wage.


 – Comprehensible Disposable Income changes from
   $24,536 to $24,281.20 with benefits or to $26,393.00
   without benefits.

 – This family actually loses income under a living wage
   with benefits since the MTR is 1.04. Without benefits,
   this family encounters a 0.85 MTR.
                 Disposable Income
Benefits and taxes     Annual Income/Value of Benefits
Gross Annual Income    $16,000.00    $22,840.00    $28,560.00

+ Food Stamps          $1,980.00     $0.00         $0.00

+ Oregon Health Plan   $464.00       $0.00         $0.00

+ Other Healthcare     $0.00         $464.00       $0.00

+ Section 8 Housing    $921.00       $0.00         $0.00

+ LIEAP                $153.00       $153.00       $0.00

+ WIC                  $445.20       $445.20       $0.00

- Net Taxes            -$4,573.00    -$379.00      $2,167.00

Disposable Income      $24,536.20    $24,281.20    $26,393.00
                            Results
   The most significant increase occurred for a single worker.
   The disposable income of a family of four increased with the living
    wage, but not by a significant amount.
   The single parent with a child suffered the worst, actually losing
    money as the wage increased to $11.42.
   As participation rates on programs increase, families have more to
    lose as their gross incomes increase.
                                    2003 CPS Data Findings

       Welfare Program                      2002 Participation in Welfare Programs
                                  OVER THE ENTIRE   FAMILY BELOW 200% OF    FAMILY BELOW 100%
                                      SAMPLE                 FPL                  OF FPL
No Welfare Participation          86.67%            68.31%                 53.84%
OHP Participation only            14.72%            31.53%                 47.12%
OHP and Food Stamps               7.86%             20.09%                 34.13%
Participation
OHP and Section 8 Participation   1.45%             4.02%                  9.62%
OHP and LIEAP Participation       14.72%            31.53%                 47.11%
OHP, Food Stamps and Section 8    1.34%             3.71%                  9.62%
OHP, Food Stamps and WIC          2.56%             7.11%                  14.90%
OHP, WIC and LIEAP                0.72%             2.01%                  3.36%
OHP, Food Stamps and LIEAP        1.34%             3.71%                  3.84%
Food Stamps Participation only    13.95%            30.75%                 42.30%
LIEAP Participation only          4.18%             11.28%                 12.01%
WIC Participation only            13.05%            27.97%                 38.47%
Section 8 Participation only      2.62%             6.18%                  10.09%
Work Force Participation          71.74%            61.11%                 53.40%
Family income below poverty                         36.08%                 11.60%
Actual MTR Findings Based on the CPS Sub-samples

 Subsample                                        Value of the Average MTR
                       Wage per hour              $11.42 / hr with      $14.28 / hr
                                                     benefits        without benefits
 Single Person    Entire Sample                   0.36               0.16
    Families
                  Families Originally Below the   0.32               0.29
                  100% of FPL
                  Families Originally Between     0.34               0.32
                  100% and 200% of FPL
 Single Parent    Entire Sample                   0.45               0.54
   Families
                  Families Originally Below the   0.64               0.84
                  100% of FPL
                  Families Originally Between     0.49               0.54
                  100% and 200% of FPL
Married Couples   Entire Sample                   0.73               0.57

                  Families Originally Below the   0.52               0.75
                  100% of FPL
                  Families Originally Between     0.61               0.44
                  100% and 200% of FPL
                   Data Conclusions
   For all subsamples the MTRs are relatively high.
     – For the subsample of single people, the MTRs are the lowest, and between 0.16
       and 0.36 meaning single people would keep from 64% to 84% of the increase in
       earnings.
     – For the subsample of single parents, the MTRs are the highest, and between
       0.45 and 0.84 meaning single parents would only keep from 55% to 16% of the
       increase in earnings.
     – For the subsample of married couples, the MTRs are high, and between 0.44
       and 0.75 meaning married couples would only keep from 56% to 25% of the
       increase in earnings.

   We can conclude that for the working poor, such a large crowding
    out effect occurs due to relatively high participation rates in welfare
    programs (up to 47.12%).
   For the relatively rich sample families, such a large crowding out
    effect occurs due to the shift to higher tax brackets caused by the
    living wage increase in earnings.

   It is evident that the living wage is an inefficient means to raise
    families’ disposable income due to higher federal and state tax
    brackets and the crowding out of welfare benefits.
                     Alternatives
   Implementing the living wage may actually be pushing
    costs from the federal government to the local
    community.
   The Earned Income Tax Credit (the EITC) is a
    refundable tax credit that directly lowers the taxes a
    family pays without affecting families’ gross income.
    – It more efficiently targets low-income families while keeping
      costs at the federal level.
    – Some drawbacks involve participation rates and errors, real or
      fraudulent, in claiming the credit.
    – Eugene currently does have the state EITC, but it is not
      refundable.
                        Conclusion
   Is the living wage worth implementing?
    – Implementing the living wage is not the most efficient
      way to raise the standard of living for low income
      families in Eugene.
          Leakages in a form of lost welfare assistance and higher taxes.
           The affected workers are not substantially better off with the living
           wage than without (some MTRs are as high as 75% or 84%).
          Labor force participation for low-income families that would have a
           worker covered by the living wage is close to only 50%.
          Living wage also covers workers that are not originally in poverty.
          Living wage ordinances typically only apply to city workers,
           workers of city contractors, and/or workers of firms receiving city
           assistance
    – The EITC is more efficient in helping low-income
      workers.
          Unlike the living wage, the EITC can be claimed directly by all low-
           income workers and does not increase taxes or lead to loss of
           public assistance programs.
          The EITC is not discriminatory: it affects all working poor.
QUESTIONS AND ANSWERS

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:42
posted:3/15/2010
language:English
pages:20