Yesterday the Washington D.C. City Council approved a $12.50 living wage that would apply to retail establishments operating in spaces with at least 75,000 square feet if they are owned by companies with at least $1 billion in annual sales. If Mayor Gray signs the bill the cost of operating big box retail establishments in the District will increase substantially. The living wage ordinance is bad news for workers and consumers in Washington, D.C. There is no doubt that the ordinance will reduce job and shopping opportunities for people who live and work in the District. The biggest losers will be working class District residents who would have worked and shopped at the retail establishments that would have been built but for the ordinance.
The Washington Post’s Wonkblog erroneously claims that: (1) “the literature” suggests that raising minimum wages in cities has no negative effect on employment and (2) large corporations “are better equipped to absorb higher labor costs.” Businesses are not sponges that exist to absorb costs – they operate to generate income for their owners, investors and shareholders. If Washington D.C. adopts laws that raise costs for retailers, there is no shortage of alternative locations elsewhere in the U.S., Mexico, or China to locate retail outlets.
Wonkblog also believes that big box retailers can afford a nationwide $12 minimum wage because some Berkeley professors said so. Apparently a $12 wage would lead to a “pretty negligible” increase in costs equivalent to 1.1% of revenue. It is clear that Wonkblog does not understand how razor-thin profit margins are for big box retailers as they compete with each other and with online retailers. Combined profits at Wal-Mart, Target, Home Depot, Lowes and Best Buy last year were 3.6% of their combined annual sales. An increase in costs equivalent to 1.1% of revenue would put a massive dent in the profitability of brick and mortar retailers when one considers that online retailers would be largely immune to the higher costs caused by a $12 minimum wage.
The D.C. living wage will kill jobs in the District because retailers in D.C. compete with suburban retail outlets. According to the Department of Labor the most common jobs in the retail sector are “cashiers” and “retail salespersons.” The D.C. ordinance would require big box retailers in the District to pay wages (even to beginning entry-level employees) that are much higher than wages paid by other retailers in the metro area. The most recent data from the Bureau of Labor Statistics Occupational Employment Survey indicates that 75% of cashiers in the Washington D.C. metro area earn less than $11.65 per hour and approximately 64% of retail salespersons in the Washington D.C. metro area earn less than $12.50 per hour. In other words, the ordinance will cause big box retailers to continue to locate stores in suburban Virginia and Maryland and avoid the District. Wealthier District residents, who rely less on public transportation, are inconvenienced less by commuting to the suburbs to shop. Working class District residents will find it much less convenient and much more expensive to commute to the suburbs to work as a cashier or retail salesperson or shop at a discount store.
The ordinance will keep big box retailers from locating in the District and cause the few big box retailers already in D.C. to leave for the suburbs. Washington, D.C. has 230 convenience stores and 173 liquor stores but only one big box discount department store. The number and type of retail establishments in the District with at least 100 employees are listed below (These data are from the Census Bureau’s County Business Patterns and Zip Code Business patterns):
|Retail Establishments With At Least 100 Employees in Washington, D.C.|
|Non-discount Department Stores||2|
|Discount Department Stores||1|
In contrast, Davidson County Tennessee (Nashville), with approximately the same population as Washington, D.C. has 22 supermarkets, 6 discount department stores and 5 non-discount department stores with at least 100 employees. Nashville residents have many more options when it comes to shopping for discounts than D.C. residents. The living wage ordinance will mean that District residents will continue to be deprived of discount shopping opportunities in their own neighborhoods.
Let’s hope that Mayor Gray has the courage to veto the living wage ordinance. It is bad public policy that harms the working class residents of the District.