Tag Archives: Wal Mart

Burden of DC’s Wal-Mart Minimum Wage would be Borne by City’s Poor

Plans to bring six Wal-Marts to the District of Columbia may fall through over city requirements for the big box store to pay an hourly wage of $12.50, more than a 50-percent increase over the District’s $8.25 minimum wage. Yesterday, the DC City Council voted 8-5 to approve this higher minimum wage, creating a higher wage requirement for stores with over 75,000 square-feet and retailers that make over $1 billion annually.

The council passed Large Retailer Accountability Act under the rhetoric that raising the minimum wage would benefit the District’s workers and that Wal-Mart can afford to pay higher wages:

Vincent Orange was one of the most vocal supporters of the bill. “We don’t need Wal-Mart, Wal-Mart needs us,” he said. “The citizens of the District of Columbia demand that we stand up for them.”

While supporters of higher minimum wages say that they are helping their least well-off constituents, in fact raising the minimum wage for Wal-Mart will hurt the very members of the city’s labor force that  council members say they are trying to help. That raising a minimum wage raises unemployment is uncontroversial among most economists. When the employment rate falls with a higher minimum wage, those left without a job will be lowest-skilled workers with the fewest job choices. While a higher minimum wage will benefit a group of employees who keep their jobs and otherwise would have made the lower minimum wage, policymakers must acknowledge the tradeoffs involved in a minimum wage law and that by supporting a minimum wage, they are hurting society’s least well-off members.

Furthermore, by discouraging Wal-Mart from opening stores, DC’s council is doing another disservice to residents by reducing availability of low-cost goods. Again, the burden of this policy decision falls hardest on the city’s lowest-income residents. Because those with lower incomes tend to spend a higher percentage of their income on food and other basic goods sold at Walmart, discouraging the company from opening DC locations is a regressive policy. Even for those who don’t choose to shop at Wal-Mart, the retailer’s low prices create pressure for other city stores to reduce their own prices to compete, benefiting an even wider net of consumers.

Mayor Vincent Gray has the option to veto the bill, which would require a ninth vote from the Council to overturn. If the DC City Council actually wants to benefit the city’s low-income residents, allowing Wal-Mart to provide jobs and affordable goods would create broader, lasting benefits to the community than a restrictive minimum wage. Requiring large stores to pay a higher minimum wage than other retailers would limit consumer choice, especially for consumers who have few choices, and it would eliminate job opportunities for the least-skilled workers.

Shortfalls in non-profit disaster rebuilding

This post originally appeared at Market Urbanism, a blog about free-market urban development.

After receiving years of praise for its work in post-Katrina recovery, Brad Pitt’s home building organization, Make It Right, is receiving some media criticism. At the New Republic, Lydia Depillis points out that the Make It Right homes built in the Lower Ninth Ward have resulted in scarce city dollars going to this neighborhood with questionable results. While some residents have been able to return to the Lower Ninth Ward through non-profit and private investment, the population hasn’t reached the level necessary to bring the commercial services to the neighborhood that it needs to be a comfortable place to live.

After Hurricane Katrina, the Mercatus Center conducted extensive field research in the Gulf Coast, interviewing people who decided to return and rebuild in the city and those who decided to permanently relocate. They discussed the events that unfolded immediately after the storm as well as the rebuilding process. They interviewed many people in the New Orleans neighborhood surrounding the Mary Queen of Vietnam Church. This neighborhood rebounded exceptionally well after Hurricane Katrina, despite experiencing some of the city’s worst flooding 5-12-feet-deep and being a low-income neighborhood. As Emily Chamlee-Wright and Virgil Storr found [pdf]:

Within a year of the storm, more than 3,000 residents had returned [of the neighborhood’s 4,000 residents when the storm hit]. By the summer of 2007, approximately 90% of the MQVN residents were back while the rate of return in New Orleans overall remained at only 45%. Further, within a year of the storm, 70 of the 75 Vietnamese-owned businesses in the MQVN neighborhood were up and running.

Virgil and Emily attribute some of MQVN’s rebuilding success to the club goods that neighborhood residents shared. Club goods share some characteristics with public goods in that they are non-rivalrous — one person using the pool at a swim club doesn’t impede others from doing so — but club goods are excludable, so that non-members can be banned from using them. Adam has written about club goods previously, using the example of mass transit. The turnstile acts as a method of exclusion, and one person riding the subway doesn’t prevent other passengers from doing so as well. In the diagram below, a subway would fall into the “Low-congestion Goods” category:

club goods

In the case of MQVN, the neighborhood’s sense of community and shared culture provided a club good that encouraged residents to return after the storm. The church provided food and supplies to the first neighborhood residents to return after the storm. Church leadership worked with Entergy, the city’s power company, to demonstrate that the neighborhood had 500 residents ready to pay their bills with the restoration of power, making them one of the city’s first outer neighborhoods to get power back after the storm.

While resources have poured into the Lower Ninth Ward from outside groups in the form of $400,000 homes from Make It Right $65 million  in city money for a school, police station, and recreation center, the neighborhood has not seen the success that MQVN achieved from the bottom up. This isn’t to say that large non-profits don’t have an important role to play in disaster recovery. Social entrepreneurs face strong incentives to work well toward their objectives because their donors hold them accountable and they typically are involved in a cause because of their passion for it. Large organizations from Wal-Mart to the American Red Cross provided key resources to New Orleans residents in the days and months after Hurricane Katrina.

The post-Katrina success of MQVN relative to many other neighborhoods in the city does demonstrates the effectiveness of voluntary cooperation at the community level and the importance of bottom-up participation for long-term neighborhood stability. While people throughout the city expressed their love for New Orleans and desire to return in their conversations with Mercatus interviewers, many faced coordination problems in their efforts to rebuild. In the case of MQVN, club goods and voluntary cooperation permitted the quick and near-complete return of residents.

Hurricane Season Begins

Today is the first day of the 2010 hurricane season, which NOAA predicts will be more active than usual, with 14 to 23 named storms. (In fairness, NOAA has been way off the mark in recent years, to the relief of the residents of the Gulf and Atlantic coasts.)

The Mercatus Center’s Gulf Coast Recovery Project has put out over 50 studies since 2005 looking at the rebuilding of the Gulf Coast after Hurricane Katrina. Below are links to eight studies that state and local policy makers may find useful today and in the coming months.

  • A Policy Maker’s Guide to Effective Disaster Preparedness and Response. In the years since Hurricane Katrina devastated the Gulf Coast region of the United States, scholars, policy makers, and concerned citizens have been working to understand what exactly went wrong in the response to the event and how better to prepare for future natural disasters. Post-Katrina New Orleans presents a unique opportunity to study how and how not to undertake the rebuilding of a major population center after such a catastrophe. Proper study of this subject, if conducted objectively and rigorously, will not only save other communities countless dollars but will also save lives.
  • Building a Safe Port in the Storm: Public vs Private Choices in Hurricane Mitigation. This Policy Comment analyzes the connection between hurricane mitigation and insurance. As many people fail to purchase government-subsidized flood and earthquake insurance, some researchers argue that market failure explains the lack of mitigation. But empirical evidence shows that markets do value natural hazards risks, including hurricane mitigation, and thus the case for market failure has been overstated.
  • The Entrepreneur’s Role in Post-Disaster Community Recovery. This Policy Primer recommends that in the aftermath of a disaster, government relax non-disaster regulations in order to allow entrepreneurs, who are in the best position to assess local conditions and needs in the rapidly changing, post-disaster environment, to step in and quickly respond to the community’s needs.
  • The Road Home: Helping Homeowners in the Gulf Post-Katrina. This comment explores Road Home’s policy goals and design, placing them in the context of the destruction wrought by the hurricanes and the role of insurance and government before and after a disaster. It then contrasts Road Home’s goals and design with the policy goals and design of Mississippi’s Homeowner Assistance Program.
  • Disastrous Uncertainty: How Government Disaster Policy Undermines Community Rebound. This Policy Comment looks at the ways in which public policy has had negative unintended consequences on the ability of communities to make informed decisions about sustainable rebuilding after Hurricane Katrina.  Based on fieldwork, the authors explain why social capital and signals generated by market and civil interactions are important to recovery efforts and how policy makers can encourage rather than retard grassroots rebuilding efforts.
  • Making Hurricane Response More Effective: Lessons from the Private Sector and the Coast Guard During Katrina. Many assume that the only viable option for emergency response and recovery from a natural disaster is one that is centrally directed. However, highlighted by the poor response from the federal government and the comparatively effective response from private retailers and the Coast Guard after Hurricane Katrina, this assumption seems to be faulty. Big box retailers such as Wal-Mart were extraordinarily successful in providing help to damaged communities in the days, weeks, and months after the storm. This Policy Comment provides a framework for understanding why private retailers and the Coast Guard mounted an effective response in the Gulf Coast region.
  • Ensuring Disaster: State Insurance Regulation, Coastal Development, and Hurricanes. This policy comment examines how state insurance regulation affects societal vulnerability to hurricanes. States provide insurance for high-risk properties at below market rates primarily through insurance pools. Seven states, including Louisiana and Mississippi, have wind pools, with over 1.8 million policies and a total liability of over $500 billion as of early 2007. Wind pools are financed, in part, through additional charges on other citizens’ premiums throughout the state to cover excess losses from hurricanes. State guaranty funds, which ensure payment of claims of insolvent insurers, also subsidize high-risk properties.

For more information about these studies or to request hard copies, feel free to email me using the link here.

The Dwindling Highway Rest Stop

This July 4th weekend marks the end of operation for 19 of Virginia’s 42 public highway rest stops, a move that will save the state $9 million.

The Wall Street Journal reports this isn’t limited to the Old Dominion; Louisiana, Vermont, Maine, and Colorado have shut down some public rest areas in recent months not only to save money, but because they’ve become obsolete – replaced by clusters of privately operated gas stations, fast food restaurants and motels right off the interstate. RV users even have the option of overnighting at many of Wal-Mart’s 4000 parking lots nationwide.

Public rest stop advocates, such as the American’s Truckers Association and AAA, argue closures are a threat to safety.  Fatigued drivers have more accidents.

Other incentives are also at work. The Association of Blind Merchants opposes the move because federal law grants them priority – about 600 of their members stock rest-area vending machines.

Federal law is also in the way of a less draconian solution. Virginia tried to privatize the soon-to-be-shuttered rest areas, but federal law prevents franchising directly on the Interstate Highway System.

Read more about the history of the public rest stop here.