Policy: Labor

'Living wage' measures hurt the young, unskilled workers the most

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Diana Furchtgott Roth,Columnists,Jobs,Labor,Analysis,Minimum Wage

District of Columbia City Council members have approved "living wage" legislation that would require large retailers and their subcontractors to pay employees $12.50 an hour.

Mayor Vincent Gray should veto the Large Retailer Accountability Act of 2013, aimed at six new Wal-Mart stores, because it would hurt economic activity in the District and reduce employment and shopping opportunities for local residents.

Large retailers are defined as those with more than 75,000 square feet of space, and with parent company annual revenues of $1 billion or more. For now, this just applies to Wal-Mart stores planned for D.C. Other large stores, such as Target, Macy's and Home Depot, are grandfathered for four years, but would be affected later.

The District's unemployment rate in May was 8.5 percent, and it needs more jobs, not fewer.

The provisions of the bill "may be waived by the written terms of a bona fide collective bargaining agreement," so union shops would be exempt.

If Gray signs the bill, Wal-Mart said that it would not pursue three stores in Skyland, Capitol Gateway, and New York Avenue, some of the city's poorest areas.

Wal-Mart's suburban stores are routinely packed, with parking spaces hard to find, generating jobs and tax revenues for Maryland and Virginia.

Criticizing the bill, a Gray spokesman said, "The Mayor has already indicated his serious concerns over the lost jobs and retail opportunities for District residents that the bill will cause."

The bill justifies the living wage on the grounds that "retailers that pay living wages and provide affordable health benefits face growing pressure to cut back when their competitors are permitted to pay low wages and offer no benefits."

But how about small stores that pay low wages and no benefits? Or the D.C. government, which pays some people below $12.50 an hour? If the D.C. Council were truly concerned about the poor, why not mandate that all stores pay a living wage?

The bill is motivated not by care for low-income D.C. residents but by animus towards Wal-Mart, particularly from unions.

For instance, the 1.3 million-member United Food and Commercial Workers has long sought to organize the 1.4 million Wal-Mart employees. More union members mean more union dues and a fresh source of contributions for failing union pension plans.

The UFCW's pension plans are in critical status, less than 65 percent funded (the government considers any pension fund that is less than 80 percent funded is endangered), according to the union's reports to the Department of Labor. Without restructuring or a new stream of funds — i.e. unionized Wal-Mart employees — the union will not be able to pay its pension obligations to future retirees.

Pension underfunding and required union dues make joining the UFCW unappealing.

Minimum and living wages hurt young and low-skilled people because their skills and productivity generally are worth less than $12.50 an hour, preventing them from getting a first job.

According to University of California-Irvine professor David Neumark, "the adverse effects of living wages fall more heavily on the least-skilled individuals, who are least likely to be employable after a mandated wage increase is enacted."

Job markets are dynamic, and workers earn more with greater experience. Take away initial job opportunities, and the "living wage" movement condemns millions of young Americans to unemployment, to a loss of opportunity, and to a lesser future.

DIANA FURCHTGOTT-ROTH, a Washington Examiner columnist (dfr@manhattan-institute.org) and former chief economist at the U.S. Department of Labor, is a senior fellow at the Manhattan Institute for Policy Research.

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