Morality vs. Reality

by Russ Roberts on July 24, 2006

in Politics, Prices, Wal-Mart

The Chicago City Council wants companies that operate in the Chicago area with more that a billion in sales and stores greater than 90,000 square feet to pay workers in those stores at least $10 an hour and provide $3 in benefits. The Chicago Sun-Times reports:

Target is putting
plans to build three South Side stores "on hold" — and making veiled
threats to close existing Chicago stores — if the City Council
mandates wage and benefit standards for "big-box" retailers,
African-American aldermen warned Thursday.

The saber-rattling is
intensifying as the clock winds down toward a July 26 showdown vote on
plans to make Chicago the nation’s first major city to establish a
"living wage" for stores with at least 90,000 square feet of space
operated by retailers with $1 billion in sales.

Target becomes the second retailing giant to threaten to pull out of
the lucrative Chicago market in a last-ditch effort to stop an
ordinance championed by organized labor that breezed through the City
Council’s Finance Committee 15-6 and has attracted support from 33

has threatened to cancel plans to build as many as 20 Chicago stores
over the next five years if retailers are required to pay employees at
least $10 an hour and $3 in benefits by July 1, 2010.

I like the words "threats" and "saber-rattling." They imply the whole thing is a morality play. The greedy retailers want to get away with low wages. The City Council stands up for the workers. They spar. They threaten. They counterpunch.

But that is not what is really happening. If the law passes, the question for Target and Wal-Mart will not be whether to carry out the "threats" they made. They will look and see whether it is still profitable to operate in the Chicago area. If it is not, it will appear as if they are carrying out their threat. If it is still profitable, it will appear as if they "backed down" and the Council called their bluff. But companies try and make profits. That’s what they do. If you make it unprofitable for them to operate a store, they will close it down.

The best part of this story comes here:

Leslie Hairston (5th) said she has a letter of intent from Target to
build a new store at Marquette and Stony Island in her ward. But the
developer has told her the store is "on hold" and that Target may close
existing Chicago stores if the big-box ordinance goes through.

called it little more than a scare tactic. And even if the threat turns
out to be real, she’s standing firm in support of organized labor.

and Target could pay their people a living wage. Then we wouldn’t have
this problem, and people could actually live on the money they made,"
Hairston said.

To Ald. Hairston, it’s a question of morality, of blame. Hairston seems oblivious to the possibility that the opening and closing of stores depends on profitability.

Imagine a different world. A world where the City Council was blamed for the failure of Wal-Mart and Target to pay a decent wage. Here’s how the story might read:

After years of disastrous decisions in running the public schools, it has become clear that Chicago’s City Council has failed the children of the Chicago area. After attending these mediocre schools, many children of the city have inadequate skills to be successful in the labor market.

"Something must be done," declared Ald. Johnson. "If we had decent schools, we wouldn’t have this problem and people could live on the money they made."

Johnson has proposed a bill that would require all Chicago City Council members and teachers and administrators in the Chicago school system to pay a special tax. The proceeds of the tax would help provide workers in the member’s district with a living wage.

How much money would such a tax raise? Its main impact would be to discourage people from being members of the City Council and teachers and administrators in the Chicago school system. If somehow the revenue from this tax outweighed the higher taxes necessary to pay the salaries necessary to continue to staff the schools and the City Council, this would be a better way to help poor workers than taxing the employers who provide the jobs.

We could debate whether it’s Wal-Mart’s fault or Target’s fault or the City Council’s fault (or someone else’s fault) as to why some workers in Chicago make less than $13 an hour including benefits. But the real question is how to help those workers, not how to punish the people you might think are at fault. Punishing retailers who then leave town is a very strange way to help the working poor.

Mayor Dailey seems to understand the dynamics:

Daley is taking the threat seriously. He has challenged aldermen who
oppose Wal-Mart’s 20-store expansion to describe how they would replace
the 8,000 lost jobs.

Ah, a dose of reality. Much simpler to assume no jobs will be lost and that the impact of the law is to help workers at the expense of profits.

For the sake of the workers, I hope the ordinance gets overturned.


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