Seminar – Government contracting and living wages > minimum wages

This paper studies an increasingly common clause in government contracts: living wages set considerably higher than mandated minimum wages. When a local government becomes a living wage employer, firms with procurement contracts must pay workers the living wage. This variation is studied for a service sector company with many establishments across the UK. Living wage imposition induced labour-labour substitution in favour of low-wage workers vis-à-vis supervisors as well as a coarsening of the within-establishment pay structure. The results are consistent with a monopsonistic labour market coupled with a low elasticity of substitution between worker types. Joint paper with Nikhil Datta.

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