Legislating two-digit hourly wages

In a move that will make Barbara Ehrenreich happier than Jason Furman, Chicago has passed a new ordinance:

After months of fevered lobbying and bitter debate, the Chicago City Council passed a ground-breaking ordinance yesterday requiring “big box” stores, like Wal-Mart and Home Depot, to pay a minimum wage of $10 an hour by 2010, along with at least $3 an hour worth of benefits.

The ordinance, imposing the requirement on stores that occupy more than 90,000 square feet and are part of companies grossing more than $1 billion annually, would be the first in the country to single out large retailers for wage rules.

Apparently they thought about passing a law that applied only to firms with names rhyming with “haul cart”, but decided that this approach would be cleverer.

We know that the advent of a Wal-Mart drives down prices. So to the extent that this ordinance changes behaviour, we can think of it as a transfer from Wal-Mart shoppers to low-wage workers. If the family income of the average Wal-Mart shopper is lower (higher) than that of the average Wal-Mart worker, then it will increase (decrease) family income inequality. But given some reasonable wage growth between now and when it comes into force in 2010, it may not bind on more than a small share of Wal-Mart’s workforce.

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5 Responses to Legislating two-digit hourly wages

  1. derrida derider says:

    Reminds me of some of the old pre-1986 US tax legislation, which had clauses like “corporations founded in the state of Maine on the sixth of October 1938 shall be exempt from income tax …”

  2. Ben says:

    Could there be suburbs or regions where the average Wal-mart wage is greater than the average wage of the shoppers within? Couldn’t be many.

  3. Andrew Leigh says:

    Ben, if you care about poverty (as I assume you do), then you want to think about family income, not hourly wages. The correlation between the two is positive, but not as high as you might think.

  4. Ben says:

    Andrew,

    Yes I see what you mean. Sally is a uni student and works at Wal-Mart part time. Her parents are bankers. She still lives at home with them. It is a wealthy family despite her low income. Her pay rise could mean a transfer of wealth from poor shoppers to her wealthy family.

    On the other hand Chuck is a single parent with custody of his kids. He just scrapes by on the Wal-Mart wage. It all gets a little complicated. I guess we have to look the net effect. Should Wal-Mart pay even lower wages in underprivileged areas if this could be shown to reduce inequality? An assumption here of course is that the Waltons respond by feeding wage rises back into prices. They may however decide to take a hit to their profit margins – perhaps unlikely. Although they’ve recently shown they’ll tackle CO2 emmissions which is a bright note.

  5. Bronwen Griffiths says:

    Presumably over time the effect of the policy change will see Wal Marts sized at 89 000 square metres.

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