Commentary

DC City Council Passes Law Likely to Kill 1,000 Jobs

Today the Washington, D.C. city council voted 8-5 to force Wal-Mart to pay their workers no less than $12.50 per hour if the world wide chain continues with plans to build stores in the area. The Large Retailer Accountability Act was designed by the city council to make Wal-Mart pay a “living wage,” and requires large retailers to pay workers at least 50% more than minimum wage. Before the ruling Wal-Mart threatening to terminate their plans to build in the D.C. area, since the wage floor directly cuts into the business model of the retail giant. While some D.C. elitists will undoubtedly rejoice and say good riddance to the “big box” retailer, many other, less fortunate residents of D.C. will remain jobless as a result of this unfair, job-killing proposal.

The academic literature is certainly mixed on how much the minimum wage affects overall employment (see here and here). However, research does decidedly show that increases in the minimum wage adversely affect the earned income of low wage workers — precisely the type of worker that will find employment at Wal-Mart.

While the aforementioned studies are interesting, it is important to note the differences between the general minimum wage laws analyzed in these papers and what is happening in D.C. In the case of Walmart and D.C., the wage law only applies to certain large retailers, not businesses in general. It is also not a marginal change. The law increases the minimum wage paid by Walmart by over 50%. Is it any wonder that Wal-Mart is thinking about pulling out of the D.C. market when many of its workers will cost 50% more than what their competitors pay?

But enough about how this is unfair to Walmart, what does it mean for job seekers? With an unemployment rate in the District (8.5%) higher than the national average (7.6%) the D.C. city council’s bill will eliminate nearly a thousand possible jobs that were already set to open up in D.C. In fact, if Wal-Mart follows through on their plan to withdraw from the D.C. market, the earned income of the nearly 1,000 workers that would have chosen to work at Wal-Mart will definitely fall, since presumably these workers would have only chosen to work at Wal-Mart if the pay there was higher than their next best option (which for a number of people right now is sitting a home at a computer filing job applications).

What’s better: a job that pays minimum wage or no job at all? Which is more livable: minimum wage income or no income at all?

While the overall employment effects of general minimum wage laws may be ambiguous, the employment effects of the D.C. proposal are not. The D.C. city council’s bill will fail to improve anyone’s standard of living and instead deny consumers access to low-priced goods and services and jobs.

For more on unemployment in America, see our earlier op-ed today about national trends in the labor market.

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

Randazzo is also managing director of the Pension Integrity Project, which provides technical assistance to public sector retirement system stakeholders who are seeking to prevent pension plan insolvency. His research focus on the national public sector pension crisis has a dual focus of identifying the systemic factors that cause public officials to underfund pension obligations as well as studying the processes by which meaningful pension reform can be accomplished. Within the Project he leads the analytics team that develops independent, third party actuarial analysis to stakeholders considering changes to public sector retirement systems.

In addition, Randazzo writes about the moral foundations of economic theory, and is currently developing research on the ways that the moral intuitions of economists influence their substantive findings on topics like income inequality, immigration, or labor policy.

Randazzo's work has been featured in The Wall Street Journal, Forbes, Barron's, Bloomberg View, The Washington Times, The Detroit News, Chicago Sun-Times, Orange-County Register, RealClearMarkets, Reason magazine and various other online and print publications.

During his tenure at Reason he has published substantive research on housing finance, financial services regulation, and various other aspects of economic policy at the federal level. And he has written regularly on labor economics, tax policy, privatization, and Turkish-U.S. political and economic issues.

Randazzo has also testified before numerous state and local legislative bodies on pension policy matters, as well as before the House Financial Services Committee on topics related to housing policy and government-sponsored enterprises.

He holds a multidisciplinary M.A. in behavioral political economy from New York University.

Follow Anthony Randazzo on Twitter @anthonyrandazzo

Adam Millsap is a summer research intern for Reason Foundation. He is a PhD candidate in Economics at Clemson University.