Living Wage Drives Spending

How Bad Public Policy Drives Maryland’s Chronic Overspending

State spending is tough to rein in when the Administration and the General Assembly pursue policy decisions that escalate the cost of doing business.

An excellent example of bad policy decisions that drive up state spending is Maryland’s living wage law passed in 2007. Supported by Governor O’Malley, House Bill 430 made Maryland the first state to require businesses under state service procurements to pay employees a specified minimum wage under a tiered structure by region.

In a recent study by the Department of Legislative Services, it was determined that “the living wage law has resulted in increased labor costs of between 13 and 25.6 percent and total contract cost increases of between 7 and 19 percent.” The report also states that this range of cost escalation is generally consistent with other research studies examining labor-intensive service contracts.

In other words, at a time Governor O’Malley and the Maryland General Assembly were facing a bleak economic forecast and out-year deficit projections, they still pushed through a state procurement bill guaranteed to increase state costs for services regardless of its consequences.

Moreover, the DLS study found that the full impact of increased labor costs was being passed onto the state and not absorbed by the service providers. This is just one of many policies that illustrate the lack of discipline to control state spending under the O’Malley Administration.

To review the DLS Study:
DLS Impact of Living Wage Report