Response on Big Boxes in Chicago-BECKER

Shortly after our commentary on the Chicago ordinance raising wages for big box employees, Target announced that it would not go ahead with plans for a store in a depressed neighborhood on Chicago's South Side unless the mayor vetoed the City Council's ordinance. This would just be the first of a series of responses by big retail stores to this ordinance if it is allowed to take effect. I do not believe the ordinance would violate ERISA by requiring a minimal amount of fringe benefits. After all, companies on their own sometimes raise their fringe benefits to much higher levels than those required by any law. I like the observation that big retailers in Chicago would be induced to outsource some activities that are now found in these store, such as greater use of temps. I should have mentioned that as one of the clear predicted effects of the ordinance. No, a rise in minimum wages does not automatically lead to greater inflation. It depends how the Fed reacts, if it reacts at all. Since even national minimum wage laws cover only a small fraction of the labor force, the Fed will surely not respond to a higher minimum imposed on large retailers in Chicago. The effect will initially be to raise unemployment of low skilled workers, and ultimately to reduce wages of low skilled workers employed at other than large retailers. I am impressed by how often errors in economic analysis made by some commentators (including by me!) are caught in other comments. One example is the posted statement that my claim that the ordinance would encourage large retailers to substitute labor for capital is wrong because they have already made all the feasible substitutions. Another post correctly points out that a government-imposed higher wage would encourage more of these substitutions because that raises further the cost of labor relative to capital. The crucial difference between the situations of large governments and large retailers, like Target or Wal Mart, is that retailers face very stiff competition, while large government units have considerable monopoly power. Some large retailers make big profits, but they do that usually in highly competitive markets, such as the retailing market in a big city like Chicago. Of course, I agree that smaller stores in Chicago favor all ordinances that discriminate against large retailers. I stated that in my post. Let me respond to the important question of how can we reduce gentrification that replaces lower income housing by middle and upper income housing. I believe in allowing supply and demand in the housing market to determine land use. Unfortunately, the balance is frequently artificially tilted in favor of gentrification by the use of eminent domain to take land away from housing low income families, and by giving tax breaks to developers who use property for gentrification purposes.

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