DC Should Give Walmart Workers a Living Wage

A couple of weeks ago, the Washington, D.C. city council passed a bill that would effectively require Walmart to pay workers in its D.C. stores a living wage. The D.C. mayor has not taken any action on the bill yet, and so it sits in limbo. D.C. is not the first city to tangle with Walmart. So many have fought the behemoth that a cottage documentary film industry has sprung up around such events.

When these events occur, a standard set of arguments tends to be rehashed again and again. However, the D.C. Walmart situation is somewhat unique from the typical case. Instead of trying to block Walmart from entering, they are just angling to force Walmart to pay higher wages. This clever move dramatically alters the generic slate of arguments that are usually trotted out in the Walmart debate.

Walmart supporters usually claim it will create more jobs because it will hire people when it opens the new stores. Walmart detractors usually claim it will destroy jobs because competing businesses will be forced to lay off employees when they go under. In theory, Walmart should not have any effect on the aggregate number of jobs in the economy, although it may effect the sectoral composition of those jobs. Except in the very short term, macroeconomic conditions dictate the employment level, not the actions of individual companies.

The jobs debate usually rages in towns that are considering whether to block Walmart from entering. But because D.C. is not blocking the Walmarts from entering, the argument is essentially moot for the purposes of assessing the living wage policy.

Prices and the Poor
In 2005, Jason Furman penned an unfortunate article titled “Wal-Mart: A Progressive Success Story.” Since then, the smug argument trotted out by the Walmart supporters has been that it really is a great boon to poor people because its low prices increase their purchasing power. The primary problem with the Furman position — especially as applied to the DC situation — is that it does not distinguish between the price reductions caused by paying workers low wages and price reductions caused by other factors.

Nobody, for instance, is mad at Walmart for its inventory and supply chain innovations, and the way those have helped lower prices. They are, however, quite angry at the low wages. Lumping all of Walmart’s price-cutting measures together and then noting how low those prices are does not actually engage the specific criticism about low wages.

Because D.C. is not trying to keep out Walmart altogether, the relevant question in this case is how much lower Walmart’s prices are due to the super-low wages. A 2011 study out of Berkeley found that if Walmart increased its pay to $12/hour and passed along the entire cost of that raise to consumers, its prices would rise by just 1.1%.

Of course, the assumption that Walmart would pass along the entire cost to consumers is just that, an assumption. Seeing as Walmart’s whole selling point is its low prices, it may not have the ability to bake the entire cost of the living wage back into the prices. Some of it might be made up in lower profits or lower pay for Walmart employees higher in the company hierarchy. Additionally, a mandated living wage may reduce employee turnover, which would, by itself, make up some of the higher labor costs.

So the reality is that we don’t actually know how Walmart’s prices would change in response to such an ordinance. It’s certainly possible that they wouldn’t go up at all.

The last thing to note is a novelty in the D.C. situation in which Walmart itself has threatened to flee from D.C. if the living wage bill is passed. It is totally unknowable how realistic this threat is. One reason not to believe it is that at some point, Walmart will have nowhere else to grow but into large urban markets. Unless it intends to leave those markets alone altogether, which seems unlikely, it will eventually have to give in to whatever D.C. or the other major cities require of them. Even if they do flee, it should not have any effect on overall employment, despite what lay media reports sometimes imply.

Given the obvious benefits of a living wage — higher pay means more material comfort, more economic security, and less socioeconomic pain — D.C.'s well-crafted living wage proposal appears to be a winner. Moreover, as as Catherine Ruetschlin reported at Demos in November, because the economy is currently operating under capacity, forcing higher pay could even be economically stimulative in the short term. When you put it all together, it is clear that D.C. should move forward with this living wage strategy.