Editor’s Note: A push to dramatically increase the minimum wage isn’t limited to Washington DC. Earlier this year, Los Angeles mayoral candidate Wendy Gruel promised to push for a minimum wage of $15 per hour in that city. This report by UnionWatch contributor Mike Shedlock explains the impracticality and unintended negative consequences of mandating a minimum wage so far above market rates. But missing too often from this debate is the win-win option: To lower the cost-of-living by breaking up monopolies and permitting land and energy development. California has unaffordable energy and housing because of artificially imposed restraints on development, and the environmental justifications are a smokescreen. Monopolies benefit from restrictions on development, as do the unions who populate monopolized industries. And unionized government, the ultimate monopoly, benefits the most from restrictions on development and competition, since their headcount grows in direct proportion to the degree of repression they may impose on emerging entrepreneurs, developers, and competitive businesses who threaten the status-quo. If land and energy development restrictions were relaxed, minimum wages would buy a lot more.

D.C. is on the verge of passing a Living Wage” law mandating $12.50 an hour wages, but only for retailers with corporate sales of $1 billion or more. The response from the world’s largest retailer is hardly unexpected.

Wal-Mart Threatens to Pull Out of D.C. 

The Washington Post reports Wal-Mart says it will pull out of D.C. plans should city mandate ‘living wage’.

 The world’s largest retailer delivered an ultimatum to District lawmakers Tuesday, telling them less than 24 hours before a decisive vote that at least three planned Wal-Marts will not open in the city if a super-minimum-wage proposal becomes law.

The company’s hardball tactics come out of a well-worn playbook that involves successfully using Wal-Mart’s leverage in the form of jobs and low-priced goods to fend off legislation and regulation that could cut into its profits and set precedent in other potential markets. In the Wilson Building, elected officials have found their reliable liberal, pro-union political sentiments in conflict with their desire to bring amenities to underserved neighborhoods.

Mayor Vincent C. Gray (D) called Wal-Mart’s move “immensely discouraging,” indicating that he may consider vetoing the bill while pondering whether to seek reelection.

Alex Barron, a regional general manager for Wal-Mart U.S., wrote in a Washington Post op-ed piece that the proposed wage requirement “would clearly inject unforeseen costs into the equation that will create an uneven playing field and challenge the fiscal health of our planned D.C. stores.”

As a result, Barron said, the company “will not pursue” stores at three locations where construction has yet to begin — two in Ward 7 and one in Ward 5. He added that the legislation, if passed, will also jeopardize the three stores underway, pending a review of the “financial and legal implications.”

The bill, known as the Large Retailer Accountability Act, passed the council on an initial 8 to 5 vote last month. The council would need nine votes to override a potential veto from Gray, who lobbied Wal-Mart to open a store at the Skyland Town Center site, near his Hillcrest home.

The Problem With “Living Wage” Laws

In the chicken-and-egg game of “living wages”, few have figured out it is government policies, not salaries that are the problem.

Here are some easy to understand examples.

  1. Hundreds of “affordable home” programs drove home prices higher until home prices eventually collapsed (at which time government bodies did everything they could to prop up prices). Conclusion: Government bureaucrats did not really want affordable homes, they just wanted to be on record as being in favor of the idea (while handing out programs in return for votes and campaign donations)
  2. Student loan programs (and of course education-related public unions) tell a similar story about out-of-control education costs.
  3. Those wishing that government would do something about health care costs need to consider that government is the primary reason health care costs are absurd.

The Real Problem

The real problem is not low salaries but rather how far money goes. Blame the Fed and government policies for that problem, not Wal-Mart.

Should the law pass, it will of course artificially make small mom-and-pop retail stores more competitive, but for whose benefit?

The net effect will be higher prices for everyone, a net loss of jobs, subsidization of weak uncompetitive companies, and a big round of cheers from union sympathizers who will benefit at the expense of everyone else (with the real problem not remotely addressed).

To top it off, living wage laws (coupled with preposterously low interest rates from the Fed) provide further incentives for companies to look at software and hardware solutions to get rid of marginal workers.

Should this inane law pass, it will backfire immediately.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

One Response to D.C. City Council Proposes “Living Wage” of $12.50 an Hour

  1. Tom Horn says:

    I’m not sure what I think about this living wage law. While I can agree with some of your points some are way off base.

    The housing market failure had little to do with the government programs. With the growth of the derivative market the demand for mortgage paper outstripped the available product. Bankers and Brokerage Companies were screaming Mortgage Brokers to bring more paper. Prime or Sub Prime makes no difference they were being packaged up into Derivatives in way that always S&P to give favorable rating. They were being traded all over the world and because they were backed by U S real estate that continues to go up in price buyers could not get enough. Bankers and Investment Firms allowed buyers to leverage up. In fact many backs were leveraged 30 to 50 percent.

    In mid 2008 Bear Stearns collapsed. The firm was liquidated and sold to J.P. Morgan. Now all of sudden no one know who can and who cannot honor their commitments. The credit market freezes and the margin calls begin. Lehman Bros. is next, then Citi Bank, then Merrill Lynch. Markets are in a free fall all over the world and all these Banks who were margined up are on the edge, many go over.

    All the while Insurance Industry was insuring all these Derivatives against loss. The Insurance instruments were packaged and sold as securities known as Credit Default Swaps. The craziest part of it all was no one understood what they owned or what it was truly worth until it became necessary to sell and there was no one to buy. Now all the NINJA loans made to supply the paper for this process were not paying and the defaults began. People just stopped paying and lived free for sometimes a couple of years. Why? Because no one knew who owned the mortgage. These derivatives were just paper that gave a claim on part of the cash flow from several pools of mortgages.

    You see the government failed to properly regulate the securities market and billions of dollars in profits were made and in the end billions was lost, but the bankers took the profit and the taxpayers who actually are the guarantor on bank deposits took the loses. Taxpayers and savers are still paying today.

    Yes it was the Government Bureaucrats who allowed it to happen but it was the Greed of Wall Street that caused it. You see regulators were sent in to talk with “Quants” who invented these things and were just BS’d and sent on their way.

    What Wall Mart has done is forced companies to move their manufacturing to places where labor is really cheap. They have run all the small operators out of business. Now they use their cheap prices as muscle on the people who lost their jobs to the cheap foreign labor. Middle Class America is dying and it is the greed of the now Multi National Corporations that are the case. Our Government has been completely corrupted and politicians are bought and sold.

    I’ve always believed if a man is willing to work a full day and do a good job he should be paid enough to have a family and live in decent conditions. Let’s see $12.50 an hour for a 40 hour week is $500 less SS Taxes, and health care. 20% for taxes 7.5 or SS and health care is going to be close to $200. That won’t leave much for babies new shoes and school supplies.

    One more thing I don’t shop at Wallmart, and I wouldn’t shop there if things were free.

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