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Living Wage Bills Hurt Everyone

It's not often that a Democratic mayor decides to take on unions and his own city council to veto a minimum-wage hike, but that's what Washington, D.C., Mayor Vincent Gray has done.

The so-called living wage bill was clearly aimed at retail giant Wal-Mart, which was scheduled to open as many as six new stores in D.C. in the coming years. The bill would have raised the minimum wage from the city's current $8.25 an hour to $12.50 in combined wages and benefits for stores with corporate sales of $1 billion or more and operating district stores of at least 75,000 square feet.

 

The D.C. council passed the Large Retailer Accountability Act by an 8-5 vote last month, and unless at least one council member changes his or her vote, the council will not be able to override the mayor's veto, which requires at least nine votes. That's good news for D.C. workers -- including those making minimum wage now.

Wal-Mart has become the bete noire of leftist activists and unions. The retail giant is the nation's largest private employer, many of whose workers earn relatively low wages, and yet has been able to fend off labor unions for decades. Big Labor has launched aggressive anti-Wal-Mart campaigns, and last month a coalition of unions and left-wing activists held demonstrations in several cities protesting wages and benefits at Wal-Mart and several big fast-food employers.

But these efforts have done little to convince workers to join unions, and so unions have changed tactics. Unions aren't very good at organizing workers -- the rate of union membership among private-sector employees is down to 6.6 percent, the lowest on record -- but they are good at electing union-friendly politicians. So, when Wal-Mart workers show little interest in joining unions, the unions turn to their friendly legislators to punish the company with laws such as the Large Retailer Accountability Act.

Of course, proponents claim the legislation is nothing of the sort -- it's just a bill to ensure employers pay workers a "living wage." But if that were true, why does the bill target only certain employers while exempting others? The unions don't seem to care whether workers at other retailers in D.C. earn the minimum $12.50 an hour -- and specifically exempt employers with union contracts in place even if they meet the bill's other major criteria and pay less than the proposed minimum.

But even if the unions' motives were pure, increasing the minimum wage by almost 50 percent would be bad for virtually everyone. Sure, some workers would see their pay go up, but other workers would have to pay for it. Wal-Mart is in business to make a profit, and they do so by offering good value to consumers while keeping their costs down. If the bill were to become law and Wal-Mart was foolish enough to go forward with its plans to open six D.C. stores, the company would have to raise its prices. Doing so would hurt Wal-Mart consumers (including many minimum-wage workers). If the company raised its prices too high, it would be uncompetitive in the market and would likely end up closing the stores, which would turn $12.50 an hour for its workers into $0.

Economists disagree on the extent to which increases in the minimum wage kill jobs, but those debates usually center on fairly modest increases, not the kind proposed in D.C. There is no question that large increases would have an effect -- and not necessarily the kind proponents favor.

A recent study by economists for the liberal Center for Economic and Policy Research evaluated the way labor markets respond to minimum-wage hikes and found that employers are often quite creative, cutting benefits and training, limiting or delaying increases for their higher-paid workers, requiring greater productivity from their minimum-wage employees, or passing on the increases to consumers. One of the only unalloyed benefits of hikes seemed to be somewhat lower turnover among low-wage workers, which helped employers manage the costs of hiring and training new employees.

Gray has done D.C. a favor by vetoing legislation that would benefit very few people and could end up hurting many more. Other cities should follow his example and reject unions' efforts to legislate what they can't achieve by organizing and bargaining for workers.