Yesterday, according to BBC, the Chicago city council voted to force major American retailers (companies with more than US$1bn in sales per year, or stores that are bigger than 90,000 sq ft…i.e. Wal-Mart) with operations in Chicago to pay a minimum wage of $9.25 per hour as well as benefits of $1.50 an hour, a 91% increase from the previous minimum wage of $5.15 per hour.
While it still requires Mayor Daly to sign it into law, should this bill pass, it would be a huge blow to major retailers in Chicago area, retailers who are clearly against it passing. And while it may seem to be a blessing for all the workers, it may turn out to bite everyone in the ass.
With such a big increase in the required minimum wage, what is to stop the large retailers, who provide employment to thousands of employees, to simply pull out of the market? It comes down to a cost-benefit analysis – if the increased minimum wage causes the cost of the Chicago stores to outweigh the profit that they are generating at the stores, they will not operate there, plain and simple. This could cost people their jobs, and, while I am for a raise in the minimum wage, I think a raise by this much could have negative repercussions.
At the present time Wal-Mart pays $7.25 per hour, $2.10 above the minimum wage. I am going to assume that they do this because, first, they are a huge MNC which generates over $300bn in revenue each year and it would not look good if such a firm was paying minimum wage, and second, because they have such a terrible reputation when it comes to their treatment of employees that they need some kind of incentive to present to those considering working there. Should the minimum wage go up to $9.25 an hour, Wal-Mart would have to pay their employees around $13 if they wanted the percent increase in wage they pay to their employees over the minimum wage to stay the same. This might prove to be too much, and instead of paying it, they might simply pull out of the Chicago market. As big a market as it is, it might not be worth it.
What might be a better idea for the Chicago city council would be to raise the minimum wage by a reasonable amount, taking into consideration inflation and the rising cost of living. There is no question that the minimum wage needs to be raised, but by raising it to a figure around about $7.50 instead of $9.25 would cause the big MNCs that this ordinance targets to pay a higher than $7.50 wage, improving the quality of life of the employees, while ensuring that they don’t pull out of the market due to a government imposed cost. Everybody wins…sort of. But at least no one loses out too badly.
-Taps
