What’s the best strategy for reducing poverty in economically stricken neighborhoods and cities? Attract businesses that will drive employment, growth and revenue in a big way. What’s the worst strategy? Impose wage mandates on the very retailers that want to help develop local economies and create jobs.
Unfortunately, not every local government sees it that way. Driven by special interests, the Washington, D.C., City Council approved a proposal that would slap large retailers with a “super minimum wage” — requiring those employers to pay 50 percent above the minimum wage that all other businesses pay. Notably, large retailers with union contracts would be exempt.
The target of the proposal is Walmart, which has plans to open three and possibly as many as six new stores and create up to 1,800 jobs in underserved regions of the nation’s capital.
Many view Walmart’s entry into D.C. neighborhoods — some of which have among the highest jobless rates in the nation — as essential to kick-starting economic development and helping raise local residents out of poverty through good jobs and access to lower-cost goods.
But the council’s living wage proposal puts all of that at risk. Moreover, it sends the message to other large retailers that their business — including their jobs and tax revenues — are not welcome in Washington.
This is a poor strategy for growth, and in the end it hurts the very people that proponents of the living wage say they are aiming to protect.
Economic studies have shown that mandatory wage hikes price the lowest skilled workers out of jobs. If companies are forced to pay an arbitrarily higher wage, they will seek workers with skills to match.
When retailers are discouraged from entering underserved areas, everyone suffers through higher costs, reduced access to affordable products and fresh produce, and forfeited tax revenue. It also creates a damaging ripple effect. Big retailers are often anchors for larger development projects. If those anchors are driven out of town, many opportunities for smaller businesses will never materialize.
Now, let’s consider the alternative. In 2006, then-Chicago Mayor Richard Daley used his first and only veto in 22 years to strike down a proposal that would have forced some businesses to pay higher wages than others. Today, Walmart has become a powerful driver of economic growth and community development in Chicago, with nine stores and 1,500 employees.
Chicago is a great example of the positive impact economic development can have in a community when local lawmakers let free market forces work. Let’s hope Washington doesn’t become a cautionary tale because its leaders do the opposite.
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— Tom Donohue is president and CEO of the U.S. Chamber of Commerce. The opinions expressed are his own.