Timothy P. Carney: Wal-Mart, Costco back minimum wage that could hurt small rivals

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Amid all those goodies in the Iraq supplemental funding bill for sugar beet farmers, California orange growers and ornamental shrub dealers lies another provision requested by big business: an increase in the federal minimum wage.

Two of the five biggest retailers in the U.S. — Wal-Mart and Costco — have lobbied for the minimum-wage hike that Democrats are now on the verge of delivering, a move that would likely help the discount giants by hurting their smaller competitors.

Wal-Mart is the largest retailer in the world, and a favorite bad guy for labor unions, anti-sprawl activists and anti-corporate crusaders, among others. One prominent critic of Wal-Mart is the AFL-CIO labor organization, which has multiple Web sites dedicated to assailing the company’s treatment of workers.

The Web site of one AFL-CIO spin-off features a parody cartoon with a Garth Brooks sound-alike singing "I’ve got friends with low wages." Another AFL-CIO anti-Wal-Mart Web page declares, "Wal-Mart kills family retail businesses."

Ironically, the one issue where Wal-Mart and the AFL-CIO are on the same side — that the minimum wage should be hiked — could be one of the most serious threats to Wal-Mart’s Mom and Pop competitors.

In October 2005, in an address to his employees, Wal-Mart CEO Lee Scott called on Congress "to take a responsible look at the minimum wage," saying, "the U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade, and we believe it is out of date with the times."

Since then, Scott has become even more explicit in his public calls for a higher minimum wage. His official reason is that his "customers simply don’t have the money to buy basic necessities between paychecks." This is unlikely, given demographic studies that show very little overlap between minimum-wage workers and Wal-Mart customers.

A 2004 survey by Mediamark Research found that73 percent of Wal-Mart shoppers own their homes. The same study found that a vast majority of Wal-Mart shoppers are 25 years old or older (59 percent are between ages 25 and 54. The survey didn’t indicate what percentage were over 54 years old), while data from the Bureau of Labor Statistics (BLS) indicate that 53 percent of minimum wage workers were under 25 in 2005.

BLS statistics suggest a more likely reason to expect Wal-Mart to benefit from a higher minimum wage: After leisure and hospitality (mostly restaurants and hotels), the industry whose workers are most likely to earn minimum wage is the retail trade industry.

Raising minimum wage would disproportionately affect the retail sector — but not Wal-Mart, which pays entry-level workers at least $8 an hour. The average wages for full-time hourly Wal-Mart employees, of course, is higher.

John Doe’s Corner Store, meanwhile, might hire a high school kid for nights and weekends at $5.15 or $6 per hour. John Doe, not Wal-Mart, will suffer if Congress raises the minimum wage. When the corner store goes out of business, Wal-Mart has one fewer competitor for customers, supplies, employees and real estate.

It’s another illustration of an important economic reality: Regulation adds to overhead, which serves as a barrier to entry and disproportionately affects smaller businesses. Of course, not only small business, but also some major retailers, including Home Depot and Kroger, will be affected by a minimum-wage hike.

Businesses supporting an increase in the minimum wage have formed a coalition called Business for a Fair Minimum Wage, whose Web site features a public petition by businesses for a minimum-wage hike. The most prominent signatory is Costco, which, like Wal-Mart, has such economies of scale that it can pay higher wages than smaller retailers and still undercut them on prices.

Costco CEO Jim Sinegal (who has donated about $400,000to Democratic politicians over the years, and none to Republicans) said in a press release from the coalition, "The increase in the minimum wage is long overdue."

Just below Sinegal’s name on the wage-hike petition are Paulette Cole, who sells high-end furnishings, and Eileen Fisher, who designs expensive clothes. Both of these employers pay workers well, and pass that cost onto their well-heeled customers. An increased minimum wage would not affect them.

Senate versions of the minimum-wage hike were tied to tax provisions — both tax cuts and tax increases — that were not in the corresponding House measures. The tax measures affect executive pay and depreciation among other issues, and they seem to favor small businesses. It is unclear whether they will end up in the final minimum wage legislation, which will likely pass whether or not that legislation is included in the Iraq war funding bill.

Examiner columnist Timothy P. Carney is author of "The Big Ripoff: How Big Government and Big Business steal your money."

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