Targeted Minimum Wages: Big Box Veto and Local Minima

Mayor Daley has vetoed Chicago's Big Box Ordinance, though this chapter of local history remains open until is known whether the City Council will override the veto - and whether a new, somewhat different ordinance will be proposed. Proponents might draft a yet more refined minimum, or "living," wage bill.  The federal minimum is $5.15; the Illinois minimum is $6.50 (another example of asymmetrical preemption by federal law); the proposed Chicago minimum would have been $9.25 (plus some benefits and then increases over several years) but only for firms that are $1 billion in size and then in business properties occupying 90,000 square feet or more. My subject here is what to make of such targeted minimum wages.

Starting with the anti-Walmart taste some voters and politicians have, let us assume that it is lawful to design legislation that places burdens on big stores and not on other businesses.  Perhaps some interest groups are thought able to defend themselves so that law need only worry about discrimination against dispersed minority interests. Alternatively, once we admit a variety of taxes and regulations, the clever regulator and legislator can overcome judicial and constitutional rules and eventually discriminate as they like through proxies.  A federal tax on, or subsidy for, Illinois alone or immigrants from a specified country might not pass muster in federal court, but one aimed at small grocers or Fermilab or airports of a certain size will do just fine. Similarly, there may be plenty of room to redesign the Big Box Tax. If the Mayor is worried that the discriminatory minimum wage will keep stores from opening and creating jobs, then a newly drafted law might exempt new stores and take aim at inframarginal stores. (I was entertained last night by my 8th grader's homework assignment, to write a letter to Mayor Daley about what he ought to do.  The assignment was preceded by one in which students had calculated the cost of supporting a family of four in "their community," so that they were pushed to think that a job "must" pay a living wage. Still, not unaware of the problem of discouraging stores from coming in to Chicago, a letter was produced in which the Mayor was encouraged to accept the minimum wage but exempt stores from the high minimum wage if they opened in areas that needed jobs or lower prices.) It might exempt employers for a given number of years.  It might provide exemptions if the city "determines" that the benefits of lower prices exceed the benefits of higher wages. I am not arguing for this sort of drafting, and certainly not for the rent-seeking that would take place under such statutes. The point is simply that tailoring by state or city has only begun.

But is such tailoring bad?  In the case of minimum wages, perhaps not, or not too much because it is somewhat self-correcting.  If Chicago wants a $10 minimum wage, then it can have some higher-paying jobs (because there will be some employers and some jobs regarding which the law will have bite), and then somewhat fewer jobs and somewhat higher prices.  It can hope that prices will stay low because of competition from stores across the city's borders or from small stores (!) but overall consumers will prefer to shop closer to home.  A locality can in this way choose between low prices and low wages, and it cannot quite bar one without denying the other. The association between low wages and low prices will influence even the most populist politician.  The trick will be to try to enjoy low prices and high wages, but this is almost impossible to do for retailing, at least so long as people want to shop in real stores.

Comments

[Guest]

What if it were the case that prices went up not when wages rose, but when the artificially low prices charged by the big box stores managed to create a near-monopoly? Then we'd have low wages and high prices. How are you so sure that wages and prices in this context aren't, at best, unrelated?

[golddog]

Why bother with a minimum wage at all? Why not try and set up a local Earned Income Tax Credit? New York City has its own EITC program in addition to the Federal program. Businesses will be encouraged to remain and will not be forced to cut jobs, while low income households will be provided with additional income. Seems like a more efficient redistributive policy than a minimum wage.

[slevmore]

Big stores trigger thoughts of monopolies, but I think there is simply no reason to fear that link in this case. We have years of experience with Walmarts and Targets and the like, and their prices are really pretty low. It is the small stores with locational monopolies that have "high" prices. Besides, the big box retailers now face substantial competition from online sellers.

As for the Earned Income Credit, I agree that there are many ways to redistribute wealth, and that wage and price controls in one direction or the other are unlikely to be the best choice. We might also improve upon an earned income credit. But we must also deal with what is politically plausible at a given moment. I might add that New York is not known for its low retail prices, and low prices are an important component in improving the standard of living of low income populations.

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[ms]

Dr. Levmore you mentioned the anti-Walmart/ big box bias. Might this be a case of minimum wage being used to somewhat further that agenda? I would imagine that a minimum wage would appear much more attractive than would prohibitive taxes or zoning measures. It would also seem that in the long run some big box retailers would eventually either relocate, or at the very least not expand at the rate they would have otherwise.

[amy mcClain]

big box needs to pay people what they deserve. people work to hard and long to bring home a check big enough to pay one bill and bus fare. walmart make billions every other day. come off your high horses and share ur wealth with people.