It will certainly be harmful if Walmart is serious about pulling out of at least three of the six planned stores. Two would be located in the poorer wards south of the Anacostia River, which have the worst food access and health outcomes in the city. While the common criticism that Walmarts displace smaller stores may be true, poor areas already lack options compared to the rest of the city. And small convenience stores typically have lower availability of healthy food and/or higher prices, both of which are correlated with higher rates of obesity and Body Mass Index among children. Research also shows that Walmarts have below average food prices and entry of a Walmart reduces prices sector wide. Then there will be the taxes that aren’t collected, and jobs that aren’t created building and operating the stores.
Then again, Walmart could just be bluffing. Its goal is to maximize profit, so it would lobby against the bill regardless. But it will still not help the poor and unskilled.
In general, studies of the effects of a Minimum Wage (MW) find a small negative to no effect on employment. But the conclusions are heavily dependent on the research methods and assumptions, with “traditional” methods finding a small negative employment effect and “newer” methods finding no effect[2].
There are many reasons for the MW to have no negative employment effect. It covers a very small percentage of the labor force, and past increases were small as well. Costs can be absorbed through higher prices, lower turnover, higher work effort / productivity, or substitution for higher skilled labor. The result is a higher share of revenue going towards less wealthy workers who spend more on consumption, giving a boost (in the short run at least) to the economy[3].
But as the gap between the MW and the market wage increases, the negative effects increase and benefits decrease. And the more difficult it is for businesses to absorb the cost of increased wages (you can only reduce turnover and increase effort so much). The “living wage” proposed in the Bill is a sizable increase over the current D.C. MW of $8.25 an hour. At a certain point, a MW increase will begin to push the poor and unskilled out of the labor market, and reduce employment.
Even if it didn’t have a negative employment effect, or cause Walmart to cancel three stores, it would still be of questionable merit. The Center for Labor Research and Education at UC Berkley looked at the effects of a $12 MW at Walmart. They found that price increases would be modest (around 1.1%). However, most (58.6%) of the benefit of higher wages would go to those already earning more than 200% of the poverty line. And this figure assumes no substitution for higher skilled labor.
But the poor and unskilled would find themselves competing with higher skilled individuals who would otherwise not think it worth having a job at Walmart. While I reject the classical argument that there is no such thing as “involuntary unemployment”, there is a cost to working and a benefit to having a bunch of free time.
Each individual has a wage level at which they are willing to bear the cost of employment for the benefits. Imagine two individuals: individual 1, who judges it worth working for anything over $8 per hour, and individual 2, who only finds it worth working if it pays above $12 per hour. Both will be interested in working at the $12.50 “living wage”. But most likely individual 2 is more skilled and/or educated, etc., and that’s why yo has a higher wage standard. Most likely, individual 2 will get the job. So even if there is no change in the number of people employed, the wage increase will push the marginally uneducated and/or unskilled out of the labor market. Unfortunately, MW literature sheds little light on the magnitude of this effect, but it is commonly mentioned as a method for absorbing the cost of wage increases.
There is a lot of theorizing involved in this argument, but the theory points to harm. And at best, it is a very inefficient way to benefit the poor. Most of the increase will go to the relatively better off. A broad MW that treats employers equally is more efficient. Why is it that $8.25 is an acceptable wage everywhere else in D.C. but exploitation at Walmart? The existing MW deflates the argument that D.C. needs to do this because wages at Walmart are generally below average for retailers, and thus bring down wages in the sector as a whole. It’s true, but there’s already a wage floor that D.C. has found acceptable for every other business that Walmart cannot undercut. And there are more efficient ways to benefit the poor that have been successful[4].
1. While it is nominally a bill aimed at large retailers and not Walmart in particular, the bill was crafted to have the effect of targeting only Walmart while not mentioning it by name.
2. "Traditional" and "Newer" put it horribly, I just couldn't think of anything better. Both methods are still used in contemporary peer-reviewed literature.
3. Another theoretical model referenced is that of a labor market monopsony, (a market with only one buyer). Specifically, a market where there is plenty of labor but only one employer. In such a case the employer would have monopsony power to keep wages below their competitive market equilibrium. While this may sound similar to Walmart setting up in a poor food desert with little competition, D.C. already has a general minimum wage that is above the federal minimum. Even if Walmart were a monopsony, it would not have the legal ability to use its market advantage to set lower than equilibrium wages. Not to mention that a less distorting method to correct that problem would be the use of anti-trust laws.
4. Such as: Food Stamps (SNAP benefits, I don’t know why it needed a name change, but whatever), the Earned Income Tax Credit, any money put into education / healthcare / subsidized government services for the poor.
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