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LivingWages & Communities: Smarter Economic Development, LowerTha� Expected Costs The New Haven Controller reported that "we originally thought [that the living wage law would have] a significant impact [on agency budgets]." However, reports from agencies after the first year of implementation show that New Haven contracts have never exceeded their line in the budget, despite the law's increased coverage as more contracts have been re-bid with the living wage requirement. These modest cost increases suggest that only a portion of the higher lahor costs resulting ��a�xx living wage laws end up being passed on to cities in the form of higher contract prices. FactorsThat May Account for Limited Impact on Contract Costs The modest increases in contract costs resulting from living wage laws have surprised some observers and have led to an examination of why this is the case. The experiences reported to us by the cities and counties in the sample suggest that two factors contribute to this result: the small number of cov- ered service contracts that involve large concentrations of low-wage workers, and an evident capaci- ty of many contractors to absorb a portion of the hi�her lahor costs. Relatively Few Serv�ee Contracts Have Large Concentrations of Low-Wage Workers O ne reason why the cost impact of living wage laws tends to be so small is that, in most localities, rel- atively few of the covered service conttacts involve lar�;e concentrations of low-wageworkers. To begin with, most living wage laws incorporate minimum size thresholds that exclude from coverage small businesses or businesses with small ciry contracts. Among those service conttacts that are covered, many involve relatively few workers whose pay must be raised to meet the living wage standard. In most cities it is only a handful of contracts —typicallythose for janitorial and security guard services— in which substantial numbers of workers must be given raises in order to meet the living wage. This is particularly true for city-level living wage laws, which seldom cover non-profit human services �7ra- grams—the service contracting area generally involving the largest concentrations of low-wage staff. However, the limited number of covered service contracts involving large concentrations of low-wage workers does not fully explain the small contract cost increases that cities have experienced. As explained earlier, several cities found that contract cost increases were substantially lower than pto- jected—projections that generally took into account the distribution of low-wage workers under the covered contracts. Contractors Absorbed Some of the Labor Cost Increases Based on reports from cities and counties, a second key factor contributing to limited con- � tract cost increases appears to have been con- tractors absorbing some of the new labor costs �4 polieymaker in Ypsilan�i Township, rather than fttlly passing them on to the local�- �� r�.,mar�{�C� �ih�C #�1� T�VY�IS�FI�� ties through higher contract prices. major contracts had Why did contractors absorb some of the costs? First, the enactment of living wage laws led sev- eral local governments to open for competitive bidding some contracts that had not been sub- ject to this process for some time. Many "�11�1i-� bidders �1��1 �r before, at even better rates." �