$15/hr and the Fate of Retail

Ms. Real Estate

—Till Minding a Minimum Squeeze

Dear Minimum Squeeze, The gradual raising of the minimum wage is already taking place in many US cities, including Chicago, Louisville, Seattle, Washington DC, Oakland, San Francisco and San Jose is unlikely to cause major consequences. That’s because nationally, only 2 percent of all wage and salary workers earn at or below the current federal minimum wage. Approximately half (48.78%) of those low wage workers work in the food industry. Other major employers of low wage workers include big box retailers, service providers like nail parlors and a variety of other smaller business employers. Even in these “low wage industries,” the proportion of workers earning at or below the current minimum wage will differ significantly between the regional economies of the US. But when and where the increases in minimum wage exceed the regional wage levels, it is inevitable that there will be some job losses and business closures. Higher end businesses such as “white tablecloth” restaurants typically pay in excess of minimum wage, so are unlikely to be affected. The same is true for higher end specialty stores and health spas. But other marginal service businesses and retailers who find it difficult to lower the cost of their wage increases will ask their landlords to reduce the rents, close their businesses, discharge some of their least productive workers, or take some combination of the above actions. I have no inside information about the recent closing of Walmart’s smaller Bay Area stores, but it would not be surprising to find that the new minimum wage regulations played a role in their decision to shutter these stores. The American Enterprise Institute’s Mark J. Perry, who tracked 2015 employment patterns in Seattle following their raising of the minimum wage and elsewhere in Washington State, reported that restaurant employment in that city fell while it grew in the rest of the state. This finding is typical of what occurred in other major metropolitan areas following an increase in one community when other communities in the state did not increase the minimum wage. The negative effect of the jobs lost and prices increased will be mitigated by the expenditures added to the local economy by minimum wage workers who retain their jobs as their employers are forced to increase their pay. Studies of the degree such stimulants to the local economy will offset the long run effects of lost jobs and less competitive businesses will have to be quite location specific. About the only generalization that one can make now is to borrow from the lexicon of economist who say, “there will be tradeoffs.”