Economists: Unaffordable Housing in Denver Stifles Living-Wage Job Growth
By Robert Davis
An analysis of monthly unemployment data by the Ludwig Institute for Shared Economic Prosperity (LISEP) helps explain why many Denverites are struggling to find work that pays a living wage.
In its monthly True Rate of Unemployment (TRU) report, LISEP determined more than one-quarter of Americans were unable to find a living-wage job in February, an increase of 0.7 percentage points from the previous month.
“Now is the time to work toward the creation of quality jobs, not just jobs that don’t pay a living wage,” Gene Ludwig, president of LISEP said in a statement.
“These numbers underscore the serious economic hardship families are facing, even as they return to the workforce. Our focus should not be to get back to where we were pre-pandemic. We have to do better,” he added.
The report measures the number of Americans who are “functionally unemployed.” LISEP defines the term to mean “those who are jobless, or who are seeking full-time work but unable to secure a position that earns above poverty-level wages,” the report says.
LISEP considers annual salaries of $20,000 before taxes to be poverty-level wages. That level of income reflects the poverty line for a family of three, according to the U.S. Department of Health and Human Services.
Similarly, MIT’s Living Wage Calculator defines a living wage as the hourly rate a single person working full-time needs to earn in order to support themselves and their family.
According to the Calculator, a single person with no children must make $17.40 per hour to support themselves in Denver County. For a full-time worker, that is an annual salary of just over $36,000.
The report also paints a picture that contradicts how economic policy makers in Denver describe the City’s recovery from the pandemic.
On March 10, the Department of Finance told the Budget & Policy Committee that Denver’s economy fared better than expected. Original projects estimated the City would see a drop in revenue of $220 million. The actual total was closer to $64 million, the agency said.
Meanwhile, both business and consumer confidence has increased significantly since the pandemic began, the finance department reported. Even so, Denver’s unemployment rate still nearly three percentage points higher than the national average at 9.3 percent.
Ludwig said the disparity in these measurements is a sign that more businesses are not paying living wages while Denver’s cost of living continues to rise.
But, economists like Alexandre Padilla, who is the Director of the Exploring Economic Freedom Project at Metropolitan State University of Denver, say Ludwig’s argument is overly simplistic.
Instead, Padilla says the reason Denverites struggle to find living wages is twofold. On one hand, housing costs have become increasingly unaffordable. On the other, people expect wages to increase independently of the cost of goods sold.
Increasing wages, therefore, must come with increased prices, Padilla argues. Without that tradeoff, businesses are forced to cut costs elsewhere, oftentimes in the form of a reduction of hours for unskilled workers or offering fewer benefits.
“It is too easy to argue that businesses do not want to pay higher wages because they are greedy,” Padilla told the Denver VOICE in an email. “Ultimately, if consumers are willing to pay higher prices, businesses will pay higher wages. On the other hand, even if consumers are willing to pay higher prices for their favorite products or services, it also means they have less money available to spend on other things.”
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) for goods in the Denver-Aurora-Lakewood metro area has dropped considerably since July 2020. COVID-19 was an obvious driving factor as local restrictions drove down consumer income and demand, and the virus disrupted traditional supply chains.
The decreasing prices for education, communication, and recreation were largely offset by a 3.1 percent increase in household expenditures and a 3.2 percent increase in apparel costs, the Bureau reports.
Denver’s planned minimum wage increases are meant to offset the rising cost of living and goods. But, Padilla argues the policy will have little impact on the number of living-wage jobs available if consumers aren’t willing to accept price hikes for food, energy, and other consumables.
One way around these issues is to remove burdensome zoning regulations that stifle the supply of housing. Increasing the supply of housing would allow for a tiered marketplace with products available for people of all income levels.
However, the other side of the equation requires Denver to build affordable housing for each income tier. Currently, new housing developments in Denver for high-income residents vastly outpace the development of affordable housing.
“There is no way around it. Increasing minimum wage won’t make housing more affordable,” Padilla said. “If we want to make housing more affordable, zoning and housing regulations such as the ones Denver has must be amended and significantly curtailed to allow developers to build more housing.”