A growing number of cities in the United States have passed living wage legislation in recent years. These laws require that affected workers be paid a minimum wage that is higher than required by federal minimum wage laws. In 2007, the U.S. minimum wage reached $7.25 per hour. Typical minimum wages mandated by living wage laws range from $8 - $10 per hour. In some cities, nearly all workers are affected. In others, only workers employed by the government, or by companies doing business with the government, are covered by the living wage requirement.

Recently, the city of Syracuse considered a living wage law. The law would only apply to employees of the city, employees of contractors that do more than $20,000 worth of work for the city, or employees of companies that receive more than $20,000 in economic development aid from the city. The living wage legislation would define any workers meeting these characteristics as "eligible workers", and require that they be paid at least $10.96 per hour.

To aid your analysis, you have been provided with the following information (some real, some hypothetical). Please note that some of the information provided may be irrelevant. You may assume that a typical full-time worker works 40 hours per week, and works 50 weeks per year.

Population 140,658

Number of workers 75,955

Percentage of workers covered by living wage law1 15%

Median household income $26,464

Percentage of all workers earning:

$7.25 7%

$7.75 1%

$8.25 2%

$8.75 3%

$9.25 4%

$9.75 3%

$10.25 3%

$10.75 2%

over $11 75%

In addition to the above demographic data, your research has uncovered the following economic parameters. Estimates of the elasticity of labor demand with respect to wages for low-wage workers are

-0.1 in the short run and -0.3 in the long run. To interpret these elasticities, think of the wage levels per hour as the price of labor, workers as suppliers of labor, and employers as demanders of labor. Furthermore, your research staff estimates that, when possible, 35% of workers laid-off off in each wage group will find employment with non affected employers looking for the same type of labor within city limits, and an additional 15% will be hired by non-affected employers in the surrounding suburbs. (Hint: for one group of wage-earners, finding similar positions will not be possible due to the federal minimum wage policy.)

QUESTIONS

1) How many workers in each wage group will lose jobs as a result of the living wage legislation?

2) Of these, how many remain unemployed, and how many obtain jobs elsewhere?

3) How, if at all, will the re-hiring of these workers affect the wages of workers not covered by the living wage law? If wages will change, please calculate the amount by which they will change. As the council member is concerned about workers under her jurisdiction, you only need to calculate this for other workers within the city limits.