Walmart is trying to bring its low prices to more urban areas, but the Washington D.C. CIty Council has crafted a bill that would ban giant retailers, namely Walmart, from paying workers less than $12.50 an hour while the city’s regular minimum wage is $8.25.
Walmart has said they'll walk if D.C. doesn't reverse course, and Slate's Matt Yglesias has pointed out that's the right strategic play. If the city backs down, Walmart wins. If the city doesn't back down Walmart can abandon D.C. and look like both a victim of regulation, and a company that's willing to stick to its guns when pressured with onererous terms.
Walmart's supporters argue it will bring jobs and increase the availability of healthy, affordable food and goods to D.C.'s population. Critics point to its working conditions and anti-union stance. One need not be very cynical to think that businesses that do not want to have to compete with Walmart and unions that don't want non-union employers succeeding form a substantial part of the Walmart opposition.
But the motives of the players are less important than the effects of their actions. The problems is we rarely know exactly what the effects of new government policies will be.
Economists are split on whether the minimum wage should exist. Forty-seven percent of American Economics Association economists surveyed in 2005 said the federal minimum wage should be eliminated, while 14% said it should be kept at the same level and 38% said it should be increased. So if anyone else tells you this the minimum wage is definitely bad or definitely good, make sure they can say why half of a lot of smart people who've been paid to study this stuff for a long time are wrong.
The first law of demand is that raising the price of a good lowers the demand for it. If labor were like most goods it would be pretty clear that raising the price of it would lead to more unemployment.
But labor isn’t exactly like other goods. When its price is raised, firms can change nothing and have lower profits. And maybe this is good if the minimum wage counters the downward pressure on wages from corporate bargaining power. Companies can fire all the workers that had marginal productivities greater than the previous minimum wage, but lower than the new one. They can invest in automated systems that make workers less necessary. They can invest in training or new systems that make the workers they employ have higher marginal productivities and thus worth employing at a higher wage. Theory and empirical evidence make it hard to say for sure what changing Walmart's D.C. labor costs by so much would do.
If you accept that causing a bit higher unemployment as long as you are transferring income from companies to low-income employees is fine, you'd still have a difficult time assessing how strong each of those effects are.
There's an argument made that Walmart's low wages force employees to receive large amounts of government aid to feed themselves — in other words, that the low wages represent a transfer from tax payers to Walmart. But when unemployment is 20% for the non-college-educated in D.C., I do not think the creation of an additional job at Walmart increases government spending. And even if it did, since unemployment severely hurts individuals, should the government not help support low income individuals so that more of them can accept jobs even if their natural marginal productivities aren't enough to feed and house them?