Wal-Mart and Minimum Wage: Showdown in Washington, D.C.
In June, Washington, D.C., lawmakers approved a bill called the Large Retailer Accountability Act that attracted a different type of national attention to the area. City lawmakers proposed that big box stores — those doing business in spaces with more than 75,000 square feet and more than $1 billion in annual sales — increase the minimum wage paid to employees from $8.25 to $12.50 per hour.
Now, D.C. Mayor Vincent Gray is in the spotlight, and he has a tough choice to make. Wal-Mart (NYSE:WMT) is the largest private employer in the nation and has announced plans to bring as many as six new stores to areas of D.C. in need of economic development. The introduction of the minimum wage bill into the mix has raised concerns with the company, which has threatened to cancel some of the openings if the bill becomes law. Standing in the way is Gray, a Democrat, who could veto or pass the measure.
On July 10, the day the Large Retailer Accountability Act passed its final vote by the D.C. City Council, the National Association of Retailers issued a statement criticizing the decision. In the statement, NRF Senior VP for Government Relations David French called the act an “arbitrary and completely discriminatory wage requirement on select retailers” and said that it “is a clear signal that a number of Council members care more about narrow, special interests than their own constituents and communities.”
In a separate statement on the issue, French said: “By any analysis this is a really flawed proposal that’s also very discriminatory…The assumption is that retailers make a lot of money, therefore they can pay higher wages and therefore you can impose higher costs by fiat. That doesn’t necessarily reflect reality.”
Wal-Mart’s history with minimum wage
In 2007, when the House of Representatives voted to increase the federal minimum wage from $5.15 to $7.25 per hour over two years, Rep. John Kline, a Republican from Minnesota who chairs the House Committee on Education and the Workforce, predicted that the wage hike would “leave recent economic growth dead in its tracks.”
His forecast had some awkward truth to it as the credit and housing bubbles burst and derailed the economy, but many would argue that the minimum wage increase did not contribute in any substantial way to the crisis.
Big business has infamously stood against increases to the minimum wage, claiming that increasing the cost of labor would make the cost of doing business prohibitively high and, at minimum, freeze hiring. However, Wal-Mart actually endorsed the minimum wage increase to which Kline objected.
H. Lee Scott Jr., who was CEO of the retailer at the time, argued that “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…Our customers simply don’t have the money to buy basic necessities between paychecks.”
The minimum wage issue is certainly not new, but the economic conditions of the post-crisis era have revitalized debate. Minimum wage was thrust into the spotlight during President Barack Obama’s 2013 State of the Union address, in which he called for an increase in the federal minimum wage from $7.25 per hour to $9.00 per hour, and for the rate to be indexed to inflation.
In May, the House Committee on Education and the Workforce released a report titled “The Low-Wage Drag on our Economy: Wal-Mart’s low wages and their effect on taxpayers and economic growth.” The report’s thesis is spelled out in the title, and it’s important to note that the report was prepared by the Democratic staff of the Committee. The detail, stamped on the report’s cover, bears some significance because of the fairly clear divide on minimum- and low-wage policy between the two parties.
Demos, a research and policy center focused on economic stability, defines low-wage work as “a job paying $12 an hour or less, equivalent to an annual income of about $24,000 for a full-time worker. Nationwide, a family of four trying to subsist on $24,000 a year hovers near the poverty level. Even a single worker with no dependents would find no room in a basic budget for health coverage, a retirement nest egg, or building emergency savings.”
Using this definition, employment figures from a National Employment Law Project report and estimates of the share of low-wage workers at each business, Demos calculated that McDonald’s (NYSE:MCD) and Wal-Mart employ a combined 1.48 million people at a wage too low to support a family, afford health care, or save for retirement. By itself, this number may not necessarily be shocking. Demos places the companies in a bucket of corporations “aiming for the highest possible profit at the lowest possible cost.”
The National Employment Law Project showed that while low-wage occupations accounted for 21 percent of recession-era job losses, they accounted for 58 percent of recovery job gains — and while mid-wage occupations accounted for 60 percent of recession losses, they accounted for just 22 percent of recovery growth.