That Toddling Town

by Russ Roberts on July 27, 2006

in Media

The Chicago City Council approved the ordinance requiring big retailers to pay at least $10 per hour in wages and $3 per hour in benefits. The New York Times story opens with inadvertent irony:

After months of fevered lobbying and bitter debate, the Chicago City
Council passed a groundbreaking ordinance yesterday requiring “big box”
stores, like Wal-Mart and Home Depot, to pay a minimum wage of $10 an
hour by 2010, along with at least $3 an hour worth of benefits.

I’m not sure "groundbreaking" is the right word to use about an ordinance that Target and Wal-Mart have said might keep them from opening new stores in the city.

But the real high point of the story comes here:

Some economists say such measures will stifle development and deprive
consumers of access to cheap goods, but many poverty experts say that
local efforts elsewhere to raise wages have not choked off growth and
that the expanding, low-paying retail sector can be safely pressed to
raise pay.

Ah, only some economists are worried. But many poverty experts are not. The implication is that the optimists outnumber the pessimists. There’s a comfort, don’t you think? The Times lets us hear from one of the optimists:

“We’re very confident that retailers want and need to be in Chicago,
and the question for the city is what kinds of jobs they will bring,”
said Annette Bernhardt of the Brennan Center for Justice at the New York University Law School, which helped draft the Chicago bill and has done economic studies of its likely impact.

It’s awkward to have a person from a law school make a claim about the economic impact of the ordinance. So to reassure the reader, we are told that she has done economic studies. So she must know, I guess, of where she speaks.

No economists worried about the impact of the law are quoted.

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{ 20 comments }

kebko July 27, 2006 at 9:08 pm

NPR coverage today was surprisingly tilted against the ordinance.

John Pertz July 27, 2006 at 9:42 pm

Its unsurprising because many of the journalists at the Times are center left. Therefore their appreciation for economics is probably sub par as compared to their enthusiasm for politics. As a result, their analysis of the newly passed legislation gives the political aspects of the story just as much weight as the economic analysis. The people who are advocating for the law are doing so for purely political reasons even though the effects of the law will be purely economic. I am sure that Annette Bernhardt is well versed and has complete faith in the tenants of her faith(center left ideology), however I wonder if she has any real economic knowledge. Its sort of like the Right and creationism. All of the science points in the opposite direction of their faith however, nobody wants to believe that they hold possibly false and irrational beliefs.

save the rustbelt July 27, 2006 at 9:53 pm

If Wal-Mart had to obey the federal labor laws like other companies, perhaps this would be unnecessary.

It is a monumentally bad idea, but an interesting experiment.

James Pyrich July 27, 2006 at 10:17 pm

Man, this whole situation feels a lot like the beginning of Atlas Shrugged… except with far less Ayn Rand.

Chris July 27, 2006 at 10:27 pm

@Save the Rustbelt: Which federal labor laws, exactly, is Wal-Mart ignoring?

Some in Chicago are speculating that Daly will exercise his first veto in 17 years (it wasn't necessary before that because the CCC mostly did what they were told). I'm skeptical, but it would be a nice switch.

colson July 28, 2006 at 1:00 am

It's funny – the only thing the article was missing was the "save the children" argument.

@Save the Rustbelt: "If Wal-Mart had to obey the federal labor laws like other companies, perhaps this would be unnecessary."

I don't quite understand what you mean – can you clarify? Is this a reference to the overtime lawsuit that happened a few years ago or maybe I missed something…. But if I understand what you are stating – maybe it would be wiser to state "If people in power in the federal government had a better understanding of how a free market works and any shred of economic understanding, then the bulk of federal labor laws and regulations would be unnecessary"

Federal minimum wage laws were the nice pearl necklace laid on the necks of the constituents – living wage laws are the matching earings that local governments like to trot out for voter sympathy. So engrained is this thought of government designed adequacy in wages that should the earings or necklace prove too hard to remove, you'll may have to take the whole head off.

kevin July 28, 2006 at 1:41 am

In the NYT article there was a picture of ACORN protesters and a quote from someone with that group, supporting the new law. Was it ever mentioned that at one time ACORN had tried to get out of paying the minimum wage to their own workers? Maybe I missed that part.

Randy July 28, 2006 at 8:39 am

John Pertz,

Re; "…the effects of the law will be purely economic."

Actually, it seems that the effects of the law will be mostly political;

"In its Economic Impact Report, Wal-Mart lists the wage range for the average sales associate position in its stores as between $7.40 and $13.75 an hour, and says the average Chicago-area associate makes $10.77 an hour."

http://www.thesentimentalist.com/archives/2004_05.html

What we have here is a bunch of politicians giving themselves a pat on the back for doing nothing. Or more precisely, taking credit for something the free market had already accomplished.

Ann July 28, 2006 at 10:01 am

Randy -

I'm not sure what you're saying, but you seem to have missed the difference between an average of $10.77 and a minimum of $10 (plus $3 in benefits). Even if the average was already higher, imposing a binding minimum will have an effect.

Ann July 28, 2006 at 10:06 am

But it's still interesting to learn that the average was already above the minimum (again, ignoring the benefits part).

The Unbeliever July 28, 2006 at 11:32 am

I agree with Ann, and would also like to point out that report covers Wal-mart only. IIRC this ordinance is projected to affect 19 chains in total, including Target and others. Is there any data on the other stores' wages?

Randy July 28, 2006 at 11:34 am

Ann,

Assuming for the sake of argument that Walmart is not already paying the $3/hr in benefits, then this is just a repeat of Maryland – an attempt to attach a mandate for benefits as a rider to a minimum wage law.

Randy July 28, 2006 at 11:43 am

Unbeliever,

Watching one of the pundits last night (sorry, don't remember which one), the word seems to be that this isn't really about the big box stores at all, but rather a political effort to drive up wages in the entire region. The theory being that small businesses will be forced to respond to higher expectations.

Matt July 28, 2006 at 12:08 pm

Seems to me like the obvious solution from WalMart and Target's perspective would be to max their stores at 89,999 square feet.

Way to go Chicago. You won yourself smaller, more crowded stored.

Patrick R. Sullivan July 28, 2006 at 6:42 pm

'Seems to me like the obvious solution from WalMart and Target's perspective would be to max their stores at 89,999 square feet.'

Nah, once they'd built a few such stores they'd just change the law to downsize the square footage.

In a related development Wal-Mart has announced it's selling all its stores in Germany, because they aren't profitable:

http://www.expatica.com/source/site_article.asp?subchannel_id=26&story_id=31911&name=Wal%2DMart+decides+to+pull+out+of+Germany

Aakash July 29, 2006 at 9:32 pm

Chicago, Chicago, Chicago…

Jacko July 31, 2006 at 5:17 pm

At Tech Central Station Don Boudreaux argues that employers will react. If I was at Wal-Mart I would consider options like these (assuming they're legal since I didn't read the ordinance):
1) Re-arrange the lower pay-grids so total wages are still the same. This would include hiring more part-time workers, freezing or even lowering the next two or three pay grades on the promotion ladder, etc.
2) Raise prices in Chicago.

Probably both, if I could get away with it.

I'm surprised no one from the Fed has publically observed that to the extent this law affects enough folks, they are just injecting inflation into the local MSA.

John Dewey July 31, 2006 at 6:56 pm

Jacko,

I agree those are possible tactics for WalMart. But Walmart has already shown how it can handle Chicago's unfriendliness. As the Wall Street journal noted today:

"When activists kept Wal-Mart out of Chicago's south side last year, the company opened the store in nearby Evergreen Park instead. Now that store collects a estimated $530 million a year in sales from Chicago residents without a penny of sales tax going to Chicago."

That %530 million figure from the WSJ seems too high. The average WalMart Supercenter has sales of $93 million per year. But even if Chicago residents only purchase $53 million annually at the Evergreen Park store, that's still a big chunk of sales tax that Chicago lost.

Perhaps $530 million is the estimate of Chicagoans purchases at the four supercenters now in place on the perimeter of Chicago.

John Dewey July 31, 2006 at 6:56 pm

Jacko,

I agree those are possible tactics for WalMart. But Walmart has already shown how it can handle Chicago's unfriendliness. As the Wall Street journal noted today:

"When activists kept Wal-Mart out of Chicago's south side last year, the company opened the store in nearby Evergreen Park instead. Now that store collects a estimated $530 million a year in sales from Chicago residents without a penny of sales tax going to Chicago."

That %530 million figure from the WSJ seems too high. The average WalMart Supercenter has sales of $93 million per year. But even if Chicago residents only purchase $53 million annually at the Evergreen Park store, that's still a big chunk of sales tax that Chicago lost.

Perhaps $530 million is the estimate of Chicagoans purchases at the four supercenters now in place on the perimeter of Chicago.

K July 31, 2006 at 7:52 pm

“We’re very confident that retailers want and need to be in Chicago, and the question for the city is what kinds of jobs they will bring,” said Annette Bernhardt of the Brennan Center for Justice

She pretty much sums it up. People not affected are confident, very confident.

Maybe Annette should have asked retailers 'do you want and need to be in a city where you lose money?'

Well, Chicago will keep Boeing. They pay over the $10 + $3/

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