A recent New York Times editorial, “Everyday Low Wages”, blasts Mayor Richard Daley of Chicago for vetoing a plan to force large retailers to pay higher wages and benefits. The editors miss just about every point there is to miss.
Here is the editorial, along with my comments.
Mayor Richard M. Daley of Chicago wielded the first veto of his 17-year tenure this week — and the City Council supported him — striking down Chicago’s short-lived plan to force behemoth retailers like Wal-Mart to pay higher wages and benefits.
In this round, Mr. Daley, the retailers and local Wal-Mart suppliers argued that mandating higher compensation would do more harm than good by driving business and employment opportunities away from low-income neighborhoods.
Every basic microeconomics textbook points out that price controls have a net negative impact on people’s welfare. Mandating higher wages is price control on the price of labor. Mr. Daley, the retailers and local Wal-Mart suppliers are right and the NYT editors are wrong. Strike one for the NYT editors.
But the choice — between no jobs or low-wage jobs — is probably a false one. Wal-Mart and other mega-retailers, like Target and Home Depot, need market share. With suburban areas saturated, cities are the logical places to grow. Wal-Mart especially needs more American consumers, having recently pulled the plug on unsuccessful attempts to expand in Germany and South Korea. It is currently planning to expand in Santa Fe, N.M., where local laws require higher wages than the company normally pays.
Wal-mart and other mega-retailers need market share only if it is profitable. By raising costs, some locations that were profitable become unprofitable. Some jobs that might have been created by Wal-mart, et al, are not. The fact that not all locations where there are mandated higher wages and benefits, such as Santa Fe, become unprofitable does not invalidate the argument. That the NYT editors use this fallacious logic is, unfortunately, not a surprise. Strikes two and three for the NYT editors.
The notion that Wal-mart needs more American consumers, even if they reduce profits, is just silly. Strike five for the NYT editors.
Another argument propounded by Wal-Mart is that paying higher wages would compel the company to raise its prices, hurting low-income consumers. Wage gains do not automatically lead to higher prices. They could be absorbed by higher productivity or by a narrowing of profit margins. Given Wal-Mart’s profits, the company could improve its wage structure and still beat the competition.
In order for a business opportunity that has become unprofitable due to mandated higher wages and benefits to become worthwhile, it must become profitable. That implies higher prices. The fact that higher productivity is possible is irrelevant because that possibility was factored into the original assessment of profitability. Narrowing profit margins is not acceptable for a project that just meets minimum profitability requirements. Strikes six and seven for the NYT editors.
The Chicago ordinance raised legal and technical questions. If Mr. Daley had not wielded the veto, it would surely have faced a court challenge. But proponents of living wages have the moral high ground, and are increasingly finding a political voice. Chicago hasn’t heard the last of them, and Washington hasn’t either.
The moral ground does not go to those who, intending to or not, make things worse. Strike eight for the NYT editors.
It is impressive that the NYT editors can make so many fundamental errors in such a short editorial. The NYT editors have definitely struck out.
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