Washington, D.C., has some of the highest living costs in the country. Its metro area contains six of the nation’s ten wealthiest counties, making it the sixth most expensive city for renters. Yet one in five of the city’s residents live on or below the poverty line. For children, the poverty rate exceeds 30 percent. It is very expensive to be poor in the District.
Given the area’s high costs and low incomes, it came as surprise to many when the Council of the District of Columbia ruled to keep Walmart out of the reach of its residents. In an eight to five ruling, lawmakers passed the Large Retailer Accountability Act. It was largely drafted and heavily lobbied for by “Respect DC,” an astroturf front group of the United Food and Commercial Workers union. This bill requires non-unionized retail outlets with 75,000 square feet or more indoor space that are part of a parent company with $1 billion or more in annual revenue to pay employees $12.50 an hour, a 50 percent premium over the city’s legal minimum wage. Guess who meets that description?
This decision comes as Walmart is in the process of building three stores in the city and is considering breaking ground for an additional three. Once completed, these stores will employ 1,800 workers. Walmart’s low prices would surely lower living costs and the indirect effect of driving other retailers to lower their own prices would be even more beneficial. On average, the arrival of a Walmart causes a 13 percent drop in competitor’s prices. When measured nationally, Walmart customers nationally save $200 billion every year.
Supporters of the bill insist that this legislation was not about keeping Walmart out, but raising workers’ wages. Councilman Vincent Orange explained, “The question here is a living wage; it’s not whether Wal-Mart comes or stays… We’re at a point where we don’t need retailers. Retailers need us. Trust me. We don’t have to beg people to come to the District anymore.”
The idea that living standards can be raised but somehow retailers are not “needed” is absurd. The purchasing power of one’s wages is solely determined by the goods and service they can be exchanged for. Walmart’s entire business model is built around providing more products at lower prices than its competitors. But opponents of Walmart have come to the conclusion that it is better to raise the living standards of the big-box retailer’s workers than to raise the living standards of Walmart’s far more numerous shoppers.
What’s more, forcing Walmart to pay higher wages will not lead to worker’s receiving higher pay; it will mean fewer workers employed. Like every other business, Walmart hires employees based on the value that they create. If D.C.’s lawmakers force Walmart or any company for that matter to compensate their employees in excess of what that employee can produce for them, firms will lay off employees and defer future hiring. This is exactly what Walmart has made clear what will happen following the D.C. Council’s decision. In a statement following the vote, Walmart spokesman Steven Restivo explained that the company would abandon its plans for building three additional stores and “review the financial and legal implications on the three stores already under construction.”
This bill’s entire purpose is keeping Walmart out of Washington, D.C. Large retailers will be required to raise wages but not fast food chains. But retailers with unionized workforces like Kroger and Safeway would be exempt from paying these higher wages. And most importantly, existing large retailers in the area will have a four-year grace period to adjust and comply with the law; newcomers would have to comply immediately.
Anticompetitive regulation is no stranger to the District of Columbia. Earlier this year, the Department of Consumer and Regulatory Affairs issued proposals to create “special zones” that places limits on how many food trucks could operate within them. Like food trucks, Walmart offers diverse choices at lower prices than established retailers in an area with some of the nation’s highest living costs. But these newcomers pose a threat to incumbent firms that more than willing to use the threat of government force to protect their positions in the marketplace. D.C. residents and legislators should seriously consider if they want to restrict competition and choice in an area with some of the nation’s highest living costs and poverty levels.