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Deep Impact

New study shows living wage can save taxpayers plenty

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By now the stats are mind-numbingly familiar: Montana ranks 50th in the nation in average earned income. One in five children in our state live in poverty. In 1998, only 57 percent of the state’s refugees from welfare reform were employed, earning an average of $280 a month.

Such facts and figures speak for themselves. But when the dust finally settles over this latest living wage initiative, the numbers that may linger the longest in the minds of the average Missoula resident may be its impact on their wallets. Namely, what are the economic costs and benefits to the Missoula taxpayer of enacting the current living wage initiative?

That question was answered in part this week by a new study comparing government benefits that are available to a minimum wage family to those available to a living wage family. The report, titled “The Living Wage: In the Public Interest?”, released by the Missoula Coalition for Living Wage Jobs, shows that raising a family’s income from the minimum wage of $5.15 an hour to a living wage of $8.80 an hour saves the taxpayer more than $9,000 a year in unnecessary public assistance programs and increased tax revenues.

The study also reveals that a living wage family contributes nearly $3,000 a year more to the tax base than a minimum wage family. (For the purposes of this study, a “family” is defined as one full-time worker with two school-aged children.)

“One third of Montana families earn less than $15,000 a year,” says Paul Haber, professor of political science at the University of Montana, who has researched low-income politics for the last 20 years. “Because the overwhelming majority of poor Montanans work, more Montanans work two or more jobs than in any other state.”

The study, which was based on a methodology developed by the Chicago Institute on Urban Poverty, found that a minimum wage family costs the Missoula taxpayer about $6,500 each year in public assistance programs such as food stamps, free school lunches, and Medicaid for low-income children. In contrast, a living wage family does not qualify for food stamps or Medicaid, and costs the taxpayer only $194, which represents the cost of their children’s reduced school lunch program.

“A minimum wage family is eligible for about 30 times the amount of public assistance as a living wage family,” says Shelly Icenhower, a UM sociology researcher and former project director of Welfare Advocacy for Montana, who helped prepare this report. “What we come to is that it clearly doesn’t make good economic sense to use limited tax dollars to create more minimum wage jobs.”

“That’s why we support this proposed ordinance that ensures city money is spent on creating living wage jobs,” says Judy Smith, with Women’s Opportunity and Resource Development. “It’s better for the families that we work with because they may have an opportunity to actually work in those jobs. It’s better for the economy because the money stays in local businesses. It buys clothes, it buys food, it buys housing. And it’s better for taxpayers to have public money used once for creating living wage jobs rather than once for lower wage job creation and then again for welfare payments.”

Smith points out that only about 195 employees in local non-profit organizations and city government would be directly covered by the living wage ordinance. Haber adds that to his knowledge, no one has tried to estimate just how many additional employees would be affected in the private sector.

“We’re not changing the world here. It’s a limited scope,” admits Carson Strege-Flora of Montana People’s Action. “We’re only capturing some of the companies that have enjoyed our public assistance over the years.”

“It should be clear to voters that the living wage initiative does not mandate that all employers pay a living wage,” adds Haber. “What it does say is that this should be the goal that we all must work toward.”

If approved by voters next month, the living wage ordinance would require employers who receive some form of financial assistance from the city, such as tax incentives, rent subsidies and revenue bond financing, to pay their workers at least $8 an hour if they provide health benefits or $8.80 if they do not.

“I think the question for me is why not do this,” says Haber. “It seems that the practical outcome of this is not going to be overwhelmingly significant. It raises the issue of the importance of trying to create more decent-paying jobs in the city.”

According to estimates from Mayor Mike Kadas, the cost of the living wage initiative on the city budget could amount to $150,000 a year. This week’s study does not address the question of how many jobs may be eliminated by the city if this ordinance is passed, as some opponents have charged.

However, the study does say that the cost of increasing wages to the 90 or so city employees who would be covered by the ordinance represents less than one percent of the city’s $20 million annual budget.

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