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D.C. Fires At Wal-Mart And Wounds Itself

It can be hard to earn a living on $10 or $12 an hour. It’s much harder to earn a living on $0 an hour.

The Washington, D.C., City Council voted 8-5 last week to establish a “living wage” of $12.50 an hour. This floor will not apply across the board, however; it will only apply to so-called “big box” retailers - those with stores of 75,000 square feet and larger or with annual corporate revenues of $1 billion or more. Existing businesses will be granted a four-year exemption, and employers with unionized work forces (such as local supermarket chain Giant and its national competitor, Safeway) are exempt.

If the bill becomes law, it won’t be the first time a city has raised minimum wage, but it will be the first time a city took aim at such a narrow target.

That target is Wal-Mart.

Wal-Mart has three stores currently under construction in D.C., and three more were planned. It announced, just prior to the final vote, that it would likely scrap the planned stores and would review its options for the ones under construction. Regional Wal-Mart executive Alex Barron wrote in a Washington Post op-ed that the new law “would clearly inject unforeseen costs into the equation that would create an uneven playing field and challenge the fiscal health of our planned D.C. stores.” The law’s advocates accused Wal-Mart of heavy-handed scare tactics. Opponents asked why anyone would expect the company to act otherwise.

The unknowns at the moment are whether D.C.’s Democratic mayor, Vincent Gray, will veto the bill and whether the Council can override the veto if he does. An override would take nine votes. Gray previously expressed reservations about both the bill’s narrow focus on big-box retailers like Wal-Mart and the potential economic impact on portions of the city where unemployment is disproportionately high. Two such areas were expecting Wal-Mart stores.

All minimum wage laws cut in two directions. They prohibit employers from hiring people at less than the stated amount, but they also prohibit individuals from selling their labor at prices below the stated amount. Teenagers looking for a first job, parents looking for a little extra income on the side, low-wage workers who want a second job, and retirees who want to supplement their income are among those who a higher minimum wage can easily strand jobless.

Advocates of raising the minimum wage know quite well that they are pricing such people out of the job market. That isn’t a bug of such legislation - in fact, it’s more or less the point. Eliminating pools of cheap entry-level or part-time labor reduces labor competition for full-time workers, theoretically driving up those full-time workers’ wage rates. At the same time, eliminating cheaper labor strengthens the bargaining power of unions and the market power of unionized employers. The last thing Giant and Safeway want is competition in the Washington grocery market from Wal-Mart.

So who pays? The would-be workers, of course, but also vast numbers of consumers who will lose access to Wal-Mart’s budget-stretching prices in the wake of the new law, as Wal-Mart confirmed it would follow through on its threat to scrap its three planned stores and review the stores already under construction. The consumers hurt most are those who don’t have cars to reach existing Wal-Mart stores in the suburbs - the same consumers who are most likely to need to stretch their budgets.

The city loses too, missing out on sales and income taxes that the Wal-Mart stores would have generated and the potential for economic rejuvenation in struggling areas.

Ultimately, unions don’t exist for the greater good, or for the good of future workers, or for the good of all current workers. They exist primarily for the benefit of their current members and secondarily for the benefit of their former members. They don’t mind saddling society with disproportionately higher costs. They just accuse “corporations” and “the wealthy” of being greedy in opposing wage increases through legislation, as though corporations and private individuals have an obligation to subsidize the livelihoods and living standards of low-skilled, long-term, full-time workers.

Washington and its residents need Wal-Mart a lot more than Wal-Mart needs Washington. The City Council shortchanged its own constituents to carry water for retail workers’ unions and the established retailers who employ their members.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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