The Impact of Living‐Wage Ordinances on Urban Crime

• DOI: http://doi.org/10.1111/irel.12065
• Author: Thomas Holman,John V. Pepper,Jose Fernandez
• Published date: 01 July 2014
• Date: 01 July 2014

The Impact of Living-Wage Ordinances on

Urban Crime

*

JOSE FERNANDEZ, THOMAS HOLMAN, and JOHN V. PEPPER

We examine the impact of living wages on crime. Past research has found that

living wages appear to increase unemployment while providing greater returns to

market work. The impact on crime, therefore, is unclear. Using data on annual

crime rates for large cities in the United States, we find that living-wage ordi-

nances are associated with notable reductions in property-related crime and no

discernable impact on nonproperty crimes.

Introduction

OVER THE PAST 15 YEARS,A NUMBER OF CITY GOVERNMENTS HAVE ADOPTED

living-wage ordinances mandating wage floors exceeding the federal minimum

wage for certain classes of workers. These floors have been found to impact

the labor market for low-skilled workers, leading to fairly substantial increases

in expected wages and a small but statistically significant reduction in employ-

ment (Campolieti, Fang, and Gunderson 2005; Neumark and Adams 2003b).

To the extent that these wage floors impact the labor market of the low

skilled, they might also affect non–labor-market behaviors such as crime. In

this paper, we examine the unintended impact of living-wage ordinances on

crime.

In the standard neo-classical model, the opportunity cost of working in

the legal sector may influence the propensity to commit crime (Becker

*The authors’affiliations are, respectively, Department of Economics, University of Louisville, Louisville,

Kentucky Email: jose.fernandez@louisville.edu; San Francisco, California Email: thomas.t.hol-

man@gmail.com; Department of Economics, University of Virginia, Charlottesville, Virginia Email: jvpep-

per@virginia.edu

JEL: I18, H73, R50.

*The authors thank Scott Adams for providing data on living wage ordinances through 2002. Parts of the

crime data used in this paper were assembled by Rob Fornango, and made available to the authors by the

Committee on Law and Justice. The authors remain solely responsible for how the data have been used and

interpreted. Pepper’s research was supported in part by the Bankard Fund for Political Economy. They

would also like to thank the editor and the anonymous referees as well as the participants of the Midwest

Economic Association Conference (Cleveland, OH) for their helpful comments.

INDUSTRIAL RELATIONS, Vol. 53, No. 3 (July 2014). ©2014 Regents of the University of California

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Road, Oxford, OX4 2DQ, UK.

478

1968; Levitt 1997). These ideas, in fact, are supported in the existing empir-

ical literature, which reveals a modest effect of unemployment and a some-

what more pronounced and lasting effect of wages on pecuniary crimes

(see, for examples, Grogger 1998; Freeman 1999; Gould, Weinberg, and

Mustard 2002; Lin 2008). This model, however, does not lead to a qualita-

tive prediction about the impact of wage floors on crime. Rather, by simul-

taneously increasing the returns to employment and the likelihood of

unemployment, theoretical predictions about the impact of living-wage ordi-

nances on crime are ambiguous. An increase in wages among the working

low skilled might be expected to decrease crime, yet the associated decrease

in employment might lead to an increase in crime. Given that living-wage

ordinances are found to have only a small negative impact on employment

but a much more pronounced positive effect on wages, one might reason-

ably speculate that these ordinances lead to a reduction in crime. Ultimately,

however, this is an empirical question that has not yet been addressed in

the literature.

To resolve this ambiguity, we use panel data on annual city-level crime

rates and living-wage ordinances from 1990–2010. For each city-year, we

observe the rates of different types of property and violent crimes, the mini-

mum and the living wage, and a detailed set of covariates. Given these data,

the basic empirical approach compares crime rates in cities before and after

the adoption of living-wage laws, as well as crime rates between cities that did

and did not adopt living-wage ordinances.

As with all such studies, a primary concern is that living-wage

ordinances may not be exogenous; living wages may be adopted or chan-

ged in response to factors that are unobserved to the econometrician but

are arguably associated with crime. For example, local labor market condi-

tions, the fiscal stability of local governments, and social services provided

by local governments may all be associated with living-wage provisions

and crime.

To account for the nonrandom adoption of living-wage laws, we use several

nested approaches. First, at the most basic level, we estimate models with a

rich set of covariates accounting for city/county- and state-level socioeconomic

and criminal justice variables that might confound inferences. Likewise, we

exploit the panel nature of the data by incorporating both city and time fixed

effects, and city-specific linear and quadratic time trends.

1

Second, in addition

to presenting results for the full sample of cities, we also restrict the analysis

to cities that had a formal living-wage campaign, some of which passed and

1

Adams and Neumark (2005a, 2005b, 2005c) in their work examining the impact of living wages on

employment and earnings also consider city-specific linear time trends.

Living-Wage Ordinances and Urban Crime / 479