“Boxed Out”

Today the Times-Dispatch editorial writers decided to provide advice to the Chicago city council. At issue is a recent council ordinance that will require large retailers within the city to meet a living wage standard of $10/hr + $3/hr in benefits, to be phased in over several years.

The essence of the RTD argument seems to be that the ordinance may jeopardize Wal-Mart and Target’s expansion plans in the Windy City. Well, that’s precisely the point: the city leaders don’t want Chicago’s vast retail market captured by a handful of big box enterprises who compete for market share and try to drive out competitors on the basis of low wages.

Not all “economic development” is healthy for a locality. When an employer says it’s going to come in and create x number of jobs, that claim needs to be taken with a grain of salt. Even if the promised jobs do materialize (not always the case)–if a Wal-Mart really does come in and hire 2,000 new people, for instance–this does not mean that the local economy has in fact gained 2,000 net new jobs.

From that figure of 2,000 we need to subtract the following, for starters: jobs lost by competitors to the new business, who may find themselves out of business; the proportion of the Wal-Mart jobs that will go to outsiders, rather than current Chicago residents; and jobs not created by firms who might have invested in Chicago but will stay away rather than go head to head with a Wal-Mart.

Even if Wal-Mart’s arrival in the city led on a full accounting to a net gain in jobs, there still would be sound reasons to oppose this form of development if the quality of these jobs turn out to be significantly worse than the jobs it displaces, or if the employer’s presence helps under-cut labor standards throughout the city. It’s perfectly possible that a Wal-Mart coming to town could increase total employment but lead to a reduction in the total wages and benefits paid to workers. That’s not economic “progress” in any meaningful sense–that’s shifting from a high-road to a low-road model of economic development.

It is often claimed that Wal-Mart has made the American economy more “efficient.” But squeezing workers and suppliers is not efficiency at all–it’s redistribution from one sector of the economy to the other. If Wal-Mart were truly efficient in the sense of being able to technically organize retail better than competitors, it should be able to thrive without needing to squeeze workers below locally prevalent wage standards.

Finally, some analysts of the Chicago ordinance believe that the Chicago market for retail is so strong that having to pay workers a higher wage will not deter Wal-Mart or others from seeking access to the city. These analysts note that living wage laws in Santa Fe, NM and San Francisco have not deterred employment growth in the retail sector in those cities.

High-road economic development strategies are, of course, largely alien to the historic practices of the Southern states, whose approach to economic development has largely consisted of suppressing labor and writing large subsidy checks to mobile corporations. But it’s not quite that way everywhere in the country. A good journalistic approach on this issue would be to investigate the range of living wage ordinances that have been implemented around the country and attempt to sort out their effects on wages and employment–or at least to survey existing studies.

Here are two good examples: The Los Angeles Living Wage Study, chaired by a UC-Riverside economics professor, and a study of the Santa Fe living wage by economists at the University of New Mexico. Both studies found that the laws produced minimal negative effects on employment. A 2006 literature review of existing studies by the Economic Poilcy Institute provides further corroboration of that conclusion.

It would not take too long for a smart editorial writer to familiarize him or herself with such studies. Until then, to paraphrase Bob Dylan, the RTD should refrain from criticizing what it doesn’t understand.

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Published in: on August 21, 2006 at 6:55 pm  Leave a Comment  

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