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  • Wal-Mart and D.C.’s Minimum Wage Increases

    The D.C. city council recently approved legislation raising hourly minimum wages in retail stores to $12.50 an hour under the Large Retail Accountability Act (LRAA).

    On the surface, it looks like the bill would simply create a very high minimum wage. However, a closer look shows the LRAA targets a very specific subset of D.C. retailers: those with more than 75,000 square feet. The proposal also exempts businesses with collective bargaining agreements or less than $1 billion in revenues. Going forward, the bill would not apply to any existing stores for at least four years. That leaves only one company immediately affected by the bill: Wal-Mart and its plans to build six stores in the District.

    The LRAA would raise Wal-Mart’s—and only Wal-Mart’s—labor costs. This would make it much harder for Wal-Mart to stay competitive and avoid losing money on those stores. In fact, Wal-Mart has announced that, if the bill becomes law, it will halt plans to build three stores in D.C. and seriously consider abandoning three other stores now under construction.

    This would benefit Wal-Mart’s competitors. Unions drafted the law, and local retailers have strongly supported it. If Wal-Mart leaves, they avoid the competition. Indeed, that appears to be the main purpose of the bill. As The Washington Post reports:

    [W]hether or not Wal-Mart follows through on its threat to leave D.C., unions will have avoided their nightmare scenario: Having a low-wage, non-union competitor figuring into future bargaining sessions with the area’s unionized grocers. “Giant and Safeway will then be saying we’re losing money, we need givebacks from the workers,” said Joslyn N. Williams, president of the Metropolitan Washington Council, AFL-CIO.

    But keeping Wal-Mart out would hurt many low-income D.C. residents. The new stores will be built in some of the poorest regions of D.C. that currently lack good retail options. (Indeed, some local churches currently organize bus trips to shop at the Wal-Marts in the suburbs.) It would cost thousands of jobs and force struggling D.C. families to pay higher prices.

    A study conducted by MIT economist Jerry Hausman found that “Wal-Mart offers many identical food items at an average price about 15%–25% lower than traditional supermarkets.” Jason Furman, chairman of President Obama’s Council of Economic Advisors, explains that “that’s a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income.”

    Laws intended to keep competition out help existing businesses. They seldom benefit the low-income families in whose name they are pushed.

    Eugenia Purcar is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.

    Posted in Featured [slideshow_deploy]

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