By Diane Furtchgott-Roth, E21, June 30, 2017
The Washington Post devoted one of its front-page news stories to complaining about the lack of supermarkets in poor neighborhoods of the Nation’s Capital. Entitled “As D.C. Prospers, Supermarkets Proliferate — Except In Poor Areas,” it quoted Theresa Stephens, an Anacostia resident, saying “We’ve got nothing over here. They’re overlooking us.”
Although Ms. Stephens is referring to the supermarkets, the people who are overlooking her are the D.C. government, whose decision to raise the minimum wage in 2014 prompted Walmart to rethink its planned stores in low-income DC neighborhoods. Over half of Walmart’s sales are in groceries. No doubt Washington’s high minimum wage, which will rise to $12.50 on Saturday, has also discouraged other grocery stores from opening.
Recall that in 2011 Walmart announced plans to open six stores, including one on Alabama Avenue Southeast, close to where Ms. Stephens lives. The minimum wage was then $8.25 an hour. In January 2014 the D.C. government passed a bill that raised the wage incrementally to $11.50 an hour in 2016. Shortly after the law was signed, Walmart pulled out of four stores in low-income neighborhoods.
For the D.C. government, $11.50 was not enough. Under a law passed in 2016, the minimum wage will gradually rise to $15 an hour in 2020, and then continue to rise with inflation.
As well as keeping low-skill people off the employment rolls, as was shown in a National Bureau of Economic Research study about Seattle published on Monday, the higher wage also discourages retailers from opening brick and mortar stores. Shares of online purchases are rising, which helps some shoppers—but not people who want to buy groceries for dinner.
The D.C. government can mandate a $12.50 or a $15 hourly minimum wage, but they cannot force firms to hire workers. As minimum wages have risen, cashiers have vanished from drug stores and food trucks have replaced restaurants. Ubereats can bring lunch to your office. Online has replaced the mall. Few would have thought 12 years ago (when the national minimum wage was $5.15) that food trucks would line the streets in D.C.’s downtown area and people would line up for their lunch.
IPads have replaced servers in many restaurants. As minimum wages rise, automation becomes more profitable, and workers are displaced. Businesses modify their products and services to suit economic conditions.
Restaurant workers in Maine are against the minimum wage because they think it would lead to lower income or less stable hours. Even supposed beneficiaries of minimum wage increases are realizing that there is no free lunch, and some are actively working against further increases to “help” them.
Even if total employment shows little change when minimum wages rise – because minimum wage workers are such a small share of America’s 146 million nonfarm payroll workers – the skill mix of employees can change, as the NBER paper mentioned above reported. That is, employers can hire a similar number of workers, but substitute high-skill for low-skill employees. Employment levels may remain the same, but evidence shows that more high-skill workers and fewer low-skill workers are hired. This leaves low-skill workers and teens with no options except unemployment.
In 2014 I was among 500 economists, including Nobel laureates Vernon Smith, Eugene Fama, Robert Lucas, and Edward Prescott, who signed a letter opposing increases in the federal minimum wage. “Although increasing wages through legislative action may sound like a great idea, poverty is a serious, complex issue that demands a comprehensive and thoughtful solution that targets those Americans actually in need,” we wrote.
Polls show that raising the minimum wage is popular. But it does not take a congressional staffer or a Safeway cashier to know the right answer when an opinion pollster asks you whether you are in favor of raising the minimum wage. Practically everyone is in favor of raising wages as long as those higher wages are paid by someone else.
No pollster asks whether a supermarket would be eagerly willing to pay $15 an hour for a cashier who was earning $8.25. The answer to such a question is generally no, and not politically acceptable. That’s one reason why there are few grocery stores in Washington DC’s Ward 7.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.