In an 8-5 vote, the DC City-Council voted to impose a super minimum wage of $12.50 (a 72% increase over the federal minimum wage, and a 52% increase over the District’s minimum wage) only on retailers with more than 75,000 square feet of retail space in the District and whose parent company registers at least $1 billion in annual sales. The minimum wage for all other employers would remain at $8.25 per hour. It is commonly known as the Wal-Mart bill because it will only capture a handful of retailers, with it’s primary target being Wal-Mart.
Aside from the arbitrariness and capriciousness of the bill and the distorting effects that a two-tiered minimum wage has on the labor market, Mayor Gray should veto this bill because it is bad for low skill workers. We have said repeatedly that increasing the minimum wage involves a trade off that results in marginally higher wages for a smaller group of workers. In this case, Wal-Mart has announced that they will not build three previously planned stores in the District and have hinted that they may not open the three that are already under construction.
According to a column by Elissa Silverman of the Fiscal Policy Institute in Hill Rag last week, the average retail wage in the District is $11.00 per hour. So, instead of the planned 1,800 jobs that Wal-Mart announced it would bring to the District paying between the $8.25 hourly minimum wage and the $11.00 per hour that the average retail worker makes, the District will get at most 900 jobs paying $12.50 per hour. If you take the average of $8.25 and $11, you get $9.63. 1,800 workers working 29 hours per week at $9.63 per hour equals $502,686 in wages per week, or $26,139,672 in wages per year. If you use the $11.00 per hour average wage, it equals $574,200 per week, or $29,858,400 per year.
With the new super minimum wage in effect, Wal-Mart will bring at most 900 jobs to the District at $12.50 per hour (keep in mind Wal-Mart could pull out completely, which would net zero jobs). 900 employees working 29 hours per week at $12.50 per hour results in wages of $326,250 per week, or $16,965,000 in wages per year under the new regime. This is called the employment effect and economists differ over the extent of it, but it appears under these circumstances to be very real. It means a minimum of $12.8 million in lost annual wages for District workers.
In macro terms for the District, it is in our best interest to have the additional $12.8 million per year in wages entering the District’s economy. That alone creates dozens of additional District jobs. In micro terms for the individual low wage worker, any job, at whatever wage, is better than no job at all.
That brings us to the intersection of the minimum wage and our workforce development system. I have been a corporate recruiter for twenty years. Whether it’s fair or not, unemployed workers get discriminated against. I cannot remember how many times a client of mine has declined to look at an unemployed candidate just because they’re unemployed. Right or wrong, there is a stigma attached to being unemployed. Having a job, any job, makes you more attractive to a potential employer than someone without one. We should use entry level jobs at Wal-Mart and other large retailers to maximize the effectiveness of our job training system and capitalize on the fact that employers look favorably on employed candidates. Wal-Mart is the best job training program we could ask for and it doesn’t cost the District a dime. Under the new law, 900 people per year would lose out on that job training.
Properly constructed, we could create part-time training programs in retail and hospitality management, among other skill sets, that would allow residents to build on the training Wal-Mart gives them and move on to higher skill work. A person with a decent track record at Wal-Mart is much more likely to do well in one of the District’s training programs. With those additional skills and a documentable work history, they will be much more attractive to potential employers. The super minimum wage will cut off from 900-1,800 workers from that incredibly valuable training opportunity and the chance to establish a work history.
The financial impacts of the super minimum wage, in the way of lost wages, are easily quantifiable, but other, arguably more important opportunities entry level employment provides to low skill workers should not overlooked. Mayor Gray should veto the proposed bill, not because it benefits greedy businessmen, but because it lays a heavy penalty on low skill workers in terms of lost opportunities.
Note: We just wanted to add this quote from Kevin Brown, a 26 year-old resident of Ward 7 from the 7/14/13 edition of the Washington Post: “Something is always better than nothing, then work your way up,” said Brown, who is jobless, has two children and is training to be a dental assistant. He said in one sentence what took us eight paragraphs. Kevin gets it, why doesn’t the Council?