Thursday, July 27, 2006

Targeting Big Box Retailers with Minimum Wage Laws

During President Clinton's tenure, state and local governments were given the right to pass their own minimum wage laws, and many of them have done so since 1996. While I stand opposed to minimum wage laws as a matter of basic principle, believing that the Earned Income Tax Credit (EITC) is a much more effective and equitable way of helping the working poor, state and local minimum wage laws are nowhere near as problematic as a law imposing a federal minimum wage. To wit, the minimum wage is a huge off-the-books tax, and state and local governments often use tax breaks to attract businesses to their jurisdiction. As such, state and local governments who impose their own minimum wage laws will put themselves at a competitive disadvantage, but that will not stop some misguided and/or corrupt politicians from passing state and local minimum wage laws, as is the case with a recent minimum wage ordinance passed by Chicago's City Council.

The recent minimum wage ordinance passed by Chicago's City Council adds a new wrinkle to the minimum wage debate in that it targets big box retailers such as WalMart. While the ordinance would probably affect as many as 38 retail locations currently in Chicago, it was apparently meant to target the first WalMart store scheduled to be opened in Chicago this September on Chicago's West Side, and it would almost certainly affect the expansion plans of other large retailers such as Target, Costco, Home Depot, and Lowe's. This has raised concerns about racial redlining of African American political districts, such as the one where the WalMart store is located. Of course, the ordinance has yet to be signed into law by Mayor Daley of Chicago, and the Illinois Retail Merchants Association has promised a court challenge of the ordinance.

The concerns about racial redlining are legitimate. Indeed, when the first minimum wage law was passed in the United States, some 500,000 African Americans lost their jobs and were replaced by more skilled and better educated White Americans. In addition to lost jobs, people of color in areas not serviced by big box retailers will have to pay higher prices for the goods that they purchase locally. Consequently, while the Chicago City Council voted 35-14 to pass the ordinance, the vote of 10-9 among the African American alderman on the council was much closer.

I am in Chicago as often as twice a month, and it has always struck me as being a town controlled by organized labor. As such, I wasn't the slightest bit surprised to find that many of the aldermen who supported the ordinance targeting big box retailers apparently did so because they were hoping to appease organized labor and avoid being challenged by well-heeled opponents in the next election. Spokane, Washington and Washington, D.C. are also considering minimum wage laws that target big box retailers, but the actions of the politicians in these towns can be attributed more to ignorance than cynical political posturing.

San Francisco, California (known locally as "The City") imposes all sorts of restrictions on retail establishments and chain stores, but there are few exceptions to its local minimum wage law. Even if that wasn't the case, the cost of living is so high in The City that it is virtually impossible for any retailer there to find anyone who will work for minimum wage. Rather, most of the people who work in The City make pretty good salaries and commute in from one of the outlying areas where the cost of living is more reasonable. Over the years, these hinterland areas have become economic powerhouses of their own, and people of modest means are moving ever farther out from The City to find affordable places to live.

Santa Fe, New Mexico has a local minimum wage law that targets retailers with more than 25 employees, which covers all but the smallest of retail businesses. Moreover, Santa Fe enjoys a monopsony because it has no suburbs where big box retailers might choose to open a location and it is geographically isolated from other metropolitan areas. Consequently, the local minimum wage law is an opportunity cost that must be paid by Santa Fe retailers.


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