October 2015

Paying employees a “living wage” is gaining traction in Texas, U.S.

There are varying definitions of the term “living wage.” It is generally used to identify the wage needed to cover the basic costs of living without the need for government or other charity support programs. One of the most widely used living wage calculators describes the living wage as “the wage needed to cover basic family expenses of food, child care, insurance premiums, health care, housing, transportation, and other necessities, plus all relevant taxes.”
 
The living wage is in the news in part because of some high-profile efforts to raise the pay of low-wage employees.
  • President Obama has proposed raising the federal minimum wage from $7.25 to $9.00 and indexing it to inflation thereafter. He also signed an executive order establishing a wage of $10.10 for all workers employed by federal contractors.
  • In April 2015, Gravity Payments, a small credit card company in Seattle gained national attention when the company’s CEO, Dan Price, announced the minimum salary of every employee would be increased to $70,000 per year. Price slashed his own pay in an effort to raise the standard of living of his employees.
These actions, along with the increased grassroots efforts of advocacy organizations, has helped bring the “living wage” issue to the fore across the United States and in Texas.

How a living wage differs from the minimum wage

The minimum wage is the lowest wage permitted by law or contract. The cost of living is not generally a consideration in setting it.
 
The federal government first established a national minimum wage of $.25 per hour in 1938. Since then, the minimum wage has not kept up with inflation. The last increase was in 2009 to the current rate of $7.25 an hour which provides an annual income of only $14,500 for a full-time worker. Twenty-nine states other than Texas have minimum wage laws requiring a state minimum wage higher than the federally mandated minimum wage.
 
Efforts in the Texas Legislature to raise the statewide minimum wage from the $7.25 federal requirement have been unsuccessful. In the most recent legislative session, House Joint Resolution 26, which proposed a constitutional amendment raising the state minimum wage to $10.10 per hour, was soundly defeated by a vote of 92 to 50. Other bills attempting to raise the minimum wage were left pending in committee.
 
In addition to the Texas Legislature’s refusal to increase the state minimum wage, the Legislature passed a minimum wage preemption law in 2003. This law prohibits local governments (cities, counties, school boards, etc.) from passing minimum wage ordinances which would require other employers to pay a wage higher than the federal minimum wage. More than a dozen other states have a similar law restricting local control of minimum wage laws.
 
Within these minimum wage constraints, some local governments have taken limited actions in support of higher wages by mandating a living wage for their employees and the employees of government contractors. These ordinances are referred to as living wage laws. Whereas minimum wage laws require a minimum hourly pay rate to any employee—whether public or private sector—living wage laws apply only to those employees who work for the local government or a government contractor

History of the living wage movement

The first living wage ordinance in the United States was passed in Baltimore more than 20 years ago. Since then, approximately 140 other local governments across the United States have adopted a living wage ordinance. Most local living wage ordinances apply to city and county governments located primarily in the Northeast, Midwest, and West.
 
Some school districts have also implemented living wage ordinances. This past summer, school districts in Los Angeles, California ($15 per hour) and Denver, Colorado ($12 per hour) passed living wage policies for school employees.  
The living wage movement has been less successful in Texas than in other parts of the country. The first living wage in Texas was adopted by Hidalgo County (McAllen-Edinburg-Mission) in 1999. The living wage movement in Texas then stalled.
 
Fast-forward to 2015, and momentum for the living wage is growing in Texas and across the nation. Within the past year, the following Texas local governments have either increased their existing living wage, adopted a living wage for the first time, or begun formal discussion and analysis of a living wage: 
  • Bexar County has increased the living wage to $13 per hour for county employees effective Oct. 1, 2015.
  • The city of San Antonio has discussed a potential increase to their existing living wage to $13 per hour effective Jan 1, 2016.
  • Dallas County does not have a formal policy but does not pay county employees less than $10.50 per hour. Leaders did not follow through on a proposal to set a living wage for county contractor employees, but will consider the wages contractors pay when evaluating contracts.
  • The city of Dallas has set its lowest wage at $10.62 per hour. Leaders discussed but backed off a proposal to set a new “wage floor” of $10.37 per hour for the employees of city contractors.
  • The city of Austin passed a three percent pay increase for all employees and established a minimum wage of $13.03 per hour for city employees.
  • El Paso County has increased its living wage to $10 per hour.
  • The city of El Paso has increased its living wage to $10.35 per hour. 
Houston ISD, the largest school district in the state, recently raised the lowest wage it pays to employees to $10. In so doing, Houston ISD became the first large employer in Houston to implement a higher minimum wage (the district does not refer to the increase as a living wage) for all its employees. The increase will cost the district about $4 million and will affect approximately 1,400 employees who previously earned between $7.80 and $10.

What is the living wage rate in Texas?

The living wage is calculated based on the actual cost of living in each local community. Therefore, there is no consensus on a statewide living wage because the cost of living varies widely across the state. Additionally, the living wage varies depending on family size, and various living wage calculators make different assumptions about what are considered essential basic needs.
 
Three of the most widely used living wage calculators provide significantly different living wage rates in Texas, with a range of nearly $5 per hour. To be as consistent as possible when comparing living wage rates using each tool, the following rates are for a single individual with no dependents. The living wage would be significantly higher if dependents (children, nonworking spouses) were included.
  • In the least expensive rural areas of the state, the living wage rate ranges from $9.40 per hour to $12.66 per hour.
  • In the most expensive county and metropolitan area of the state (Travis County/Austin), the living wage ranges from $10.97 per hour to $14.38 per hour.

Various calculations of the living wage for a single person in Texas

Calculators Living wage calculator—MIT Texas Family Budget Estimator—CPPP Family Budget Calculator—EPI
Lowest cost of living in Texas $9.40 $11.54 $12.66
Highest cost of living in Texas $10.97 $14.09 $14.38

Living wage considerations

Proponents generally offer the following arguments in support of implementing a living wage.
  • Poverty and inequality would be reduced.
  • A stronger middle class is a key to a stronger local economy.
  • Employee absenteeism and turnover rates will decrease.
  • Employee morale and productivity will improve.
  • Workers will become less reliant on costly social services.
  • Local governments should demonstrate a greater social responsibility to the community.
Opponents generally provide the following arguments against implementing a living wage.
  • There is no consensus on the standard hourly rate for the living wage; therefore it is impossible to set a rate accurately.
  • It will cost taxpayers more and potentially cause a loss in overall employment opportunity.
  • Payroll costs increase, not only for the lowest paid employees but also because of the ripple effect caused by having to pay workers in higher level jobs more to prevent wage compression.
Planning for the implementation of a new living wage is not a simple task. Agreements must be reached about the wage rate, what it will cost, how to preserve the pay structure at all levels, whether government contractors should be affected, whether an inflationary index should be applied, and how to get support from taxpayers.
 
There is neither a requirement nor a prohibition for any local government to adopt a living wage. While there are multiple pros and cons to consider, a district’s adoption of a living wage is a board decision that requires careful consideration and involves many stakeholder groups. Although living wages have not been widely adopted in Texas yet, expect the movement to grow and be discussed and debated by more policymakers in the future.