Chicago's Big Box Minimum Wage Plan
Chicago has made news by passing an ordinance requiring large stores that are part of billion dollar companies to pay a higher minimum wage than is applicable to other employers. Even the structure of the wage is compulsory; of the $13 required to be paid per hour by 2010, $3 must be in benefits. One conventional way to understand the legislation is that it serves the interests of a number of fairly well organized groups. These include groups that would prefer for Walmart and Home Depot to stay away. Meanwhile, it imposes costs on consumers who might be more difficult to organize and who find it difficult to assess the impact of such legislation on prices, on the level of service that will be provided when these stores do open within the city limits, and on the cost of traveling to stores outside the jurisdiction.
There will be court battles ahead or perhaps a mayoral veto. The legislation is more difficult to upset in court the more it appears to apply neutrally to a set of employers. It is a discriminatory minimum wage law, in effect, but so is a familiar minimum wage law that appears to be universal but then exempts, as some do, farmworkers or waiters or non-profit-organization employees. The question will be the extent and focus of the inclusions and exemptions.
A different view of the legislative strategy is that it reflects a lack of faith in government, or at least in the government's promises as to how it will spend revenues. Very little stops a government from discriminating against the most successful firms in the economy with a progressive income tax. For some cities this might require state approval - and that might be impossible to obtain - but in principle Chicago could impose a city income tax with the "right" triggers and rates so that only the largest and most profitable firms paid the tax, or paid the higher rates of taxation. The tax revenues could then redsitributed to smaller firms or to various unions or to groups of low-wage employees through a variety of training programs, tax reductions, or targeted expenditures. In short, the losers and winners under Chicago's proposed "Big Box Store" tax could be recreated through a more conventional tax - but it requires some faith on the part of interest groups that the government would spend the money as promised. If this promise is questionable, then the interest groups will prefer the less efficient (differential) minimum wage approach. (It is likely less efficient because on the margin it discourages employment.) Somewhat similarly, if the income tax approach is not used because it requires state approval, then the minimum wage approach is simply an end run around this myopia of the state legislators. It is something they can choose to fix either through more constraints on municipalities or by permitting income or other taxes with similar effects.