Wal-Mart’s threatening to pull out of D.C. if it has to pay a higher minimum wage. So what?


One of the stores that wouldn't get built if Wal-Mart makes good on its threat. (A&R Co.)

For two and a half years now, Washington has been trying to figure out what, if anything, to do about the six stores Wal-Mart is planning to open in the city. The company has a pretty bad history of paying low wages and vacuuming streets of their local businesses, and activists have  pushed for concessions that would at least force it to be a good corporate citizen.

But the company cut its real estate deals such that local politicians had little leverage, and most didn't want to use it anyway, lulled by promises of thousands of jobs and retail for some of the neighborhoods that need it most. Ultimately, Mayor Vincent Gray signed a "community partnership agreement" that contains goals for the hiring of local residents, but no enforcement mechanism whatsoever.

At long last, however, the D.C. Council may have found a way to squeeze something more out of the world's largest retailer: passing a bill that requires all corporations in the city with more than $1 billion in global sales and operating in spaces larger than 75,000 square feet to pay a minimum wage of $12.50, with exceptions for companies with collective bargaining agreements (read the bill here). That means that Wal-Mart, along with other big chains such as Home Depot, Costco and Macy's, would have to pay nearly 50 percent more than D.C.'s existing $8.25 minimum wage.

Well, Wal-Mart's not too happy about that. Last night, an executive declared on The Washington Post's Web site that it would cancel plans for the three stores not yet under construction if the bill became law.

So, there are a few things to consider.

Is this "about sticking it to Wal-Mart," as Council member Muriel Bowser put it

From the beginning, activists targeted Wal-Mart -- rather than, say, the non-union Harris Teeter or Target -- because it's easier to pass laws affecting future market entrants. Plus, as a very big new kid on the block, Wal-Mart has the power to create upward pressure on wages if forced to pay more at the outset (including at the unionized grocery stores, Safeway and Giant). Now, the bill has been tweaked to apply to most of the city's existing big-box retailers, so it's really about sticking it to large companies that are better equipped to absorb higher labor costs.

What have other cities done to try to get more out of Wal-Mart or keep it out completely, and have they succeeded? 

- Back in 2006, Chicago passed an ordinance requiring Wal-Mart and other big-box stores to pay a $10 minimum wage plus benefits, but Mayor Richard Daley vetoed it. In 2010, unions said they had gotten Wal-Mart to agree to pay 50 cents more than the state minimum wage of $8.75, but Wal-Mart denied agreeing to anything. Now, there are eight stores open in the city, with more in the works.

- Last year, the Los Angeles City Council banned chain retail stores from Chinatown, but Wal-Mart managed to secure building permits for its first store in central L.A. the night before the vote. In April, opponents sued over its approval and haven't yet received a ruling.

- After a years-long campaign to open a store in East Brooklyn, Wal-Mart essentially backed down in the face of fierce opposition from unions and New York City politicians. It's rumored to be still looking around for new sites.

- After protests, Wal-Mart abandoned tentative plans to open in communities around Boston, citing cost considerations.

What about other major cities?

Wal-Mart has stores in New Orleans, Portland, Philadelphia, Phoenix, Dallas, San Antonio and the outskirts of Houston and San Diego, among others. It hasn't yet entered Seattle or San Francisco.

How would increasing the minimum wage just for large retailers impact business? 

The difficult thing about increasing minimum wages in D.C., as opposed to a larger state, is that it's very easy for retailers to simply set up shop just outside the border in Maryland and Virginia, which means the District loses tax revenue and jobs. Those states already have lower tax rates, and Wal-Mart seems to have decided that while it's worth being closer to an increasingly wealthy population in D.C. proper, there's a point at which the cost-benefit analysis will tip in favor of the suburbs.

Overall, the literature suggests that raising minimum wages in cities has no negative effect on employment -- not in Santa Fe, which raised its wage floor by 65 percent over the statewide minimum in 2004, nor in San Francisco, which is now up to $10. That's just comparing employment against an existing baseline, though, rather than looking at the employers who might have entered the city had the wage been the same as in outlying areas.  Also, $12.50 is a higher number than either of those cities experimented with.

Could Wal-Mart pay a minimum wage of $12.50 and stay in business? 

There are two reasons why it's unlikely Wal-Mart is bluffing about canceling those three stores. One: As the Washington City Paper points out, they were the more marginal stores in poorer areas anyway. And two: If D.C. wins on this one, it will set an example that could reverberate throughout the nation.

That doesn't mean it couldn't pay that kind of minimum wage. In 2011, a couple of Berkeley economists found that raising its minimum wage in the U.S. to $12 an hour would cost the company $3.21 billion. Passing all of that on to consumers would raise prices by 1.1 percent, which is pretty negligible. Although it has a slightly different business model, it's instructive to note that big-box bulk retailer Costco pays much higher average wages -- $20.89 to Wal-Mart's $12.67.

Would it be a good thing for D.C. if Wal-Mart pulled out? 

There's lots of evidence to suggest that Wal-Mart destroys nearly as many jobs as it creates and drives its own employees to depend on public benefits. But several of the locations where Wal-Mart has committed to open have very little in the way of retail around them, and Office of Planning Director Harriet Tregoning has emphasized that small businesses in the vicinity should be able to prepare for it. Currently, many District residents are skipping over those small stores anyway on their way out to suburban Wal-Marts; keeping them in the neighborhood might open up opportunities for complementary businesses --  such as restaurants or auto-repair shops -- to open around them. Finally, many of the developments had been searching for anchor tenants for years; it's unclear that Wal-Mart could be easily replaced, leaving the sites fallow.

Whether or not Wal-Mart could be forced to pay higher than the District's current minimum wage -- either through the current bill or a slightly smaller across-the-board hike -- there are negative consequences if it follows through on its threat.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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