WASHINGTON -- The bitter standoff between Wal-Mart and Washington, D.C. officials over the city's effort to impose a higher minimum wage on big-box retailers is fueling a wider debate about how far cities should go in trying to raise pay for low-wage workers -- and whether larger companies should be required to pay more.
Wal-Mart, the nation's largest private employer, is fuming about a "living wage" bill approved by the D.C. City Council that has an unusual twist -- it would apply only to certain large retailers, forcing them to pay employees at least $12.50 an hour. That's nearly 50 percent higher than city's minimum wage of $8.25 an hour.
The measure is being cheered by unions and worker advocates who have long complained about Wal-Mart's wages and working conditions. Opponents call it an unfair tactic that will discourage companies from doing business in the city.
Wal-Mart has threatened, if the bill becomes law, to cancel plans for three of the six stores it hopes to build in some of the city's poorest neighborhoods that are sorely in need of economic development. The measure is now before D.C. Mayor Vincent Gray.
Some economists say targeting large retailers or other industries that can afford to increase wages may be an effective way to raise pay to even higher levels than a broad-based minimum wage. The D.C. bill applies to stores of 75,000 square feet or larger and annual corporate revenues of at least $1 billion.
"A large retailer can more easily absorb a pay hike than a corner store," said Arindrajit Dube, an economics professor at the University of Massachusetts Amherst and a prominent supporter of raising the minimum wage. Large stores are "less likely to shut down or cut back on employment" in response to such an increase, he said.
But Dube cautioned that a targeted hike might make it harder for Wal-Mart and other big box stores to pass on the wage hike as a price increase since smaller retailers could still keep prices low.
The minimum wage in the nation's capital already is higher than the federal rate of $7.25 an hour. Other cities and states that have sought to raise the minimum wage above what is required have applied the hike to all businesses. San Jose, Calif., recently raised its minimum from $8 to $10 an hour and San Francisco's rate of $10.55 an hour is the highest in the nation.
Still, no other city has singled out certain businesses for higher wage rates. The Chicago City Council tried to pass a similar measure seven years ago, but it was vetoed by then-mayor Richard M. Daley. Opponents have suggested the D.C. bill may be subject to a legal challenge, but those prospects are uncertain.
President Barack Obama has proposed raising the federal minimum to $9 an hour and boosting it annually to keep pace with inflation.
Many Wal-Mart workers already make $12.50 an hour -- the rate set by the D.C. bill -- or more, but the average sales associate earns $8.81 per hour, according to IBISWorld, an independent market research group. Wal-Mart spokesman Steven Restivo questioned why the D.C. measure excluded unionized stores such as Safeway and Giant, suggesting the bill is specifically targeting non-union stores. He said most of the company's 1.4 million workers are full-time and about 75 percent of the store's management teams started as hourly associates. The average pay of full-time workers is between $50,000 and $170,000 a year, Restivo said.
David Neumark, an economics professor at the University of California Irvine, has argued that raising the minimum wage is bad for workers because it discourages employers from hiring and leads to fewer jobs. He said Wal-Mart's low prices are more important to helping low-income workers.
"We can talk about wages, but if you can lower prices, that's as good as raising wages," Neumark said. "And of course helps a lot more people."
Forcing Wal-Mart to raise its salaries could create more gradual pressure on smaller businesses to boost wages over time, said Michael Reich, an economics professor at the University of California, Berkeley.
"A lot of people would be trying to get jobs at Wal-Mart," he said. "That labor market pressure is going to raise wages at smaller stores, just because Wal-Mart is such a big employer."
But business groups call the idea outrageous and unfair.
"By any analysis this is a really flawed proposal that's also very discriminatory," said David French, president of the National Retail Federation.
"The assumption is that retailers make a lot of money, therefore they can pay higher wages and therefore you can impose higher costs by fiat," he said. "That doesn't necessarily reflect reality."
Retailers are typically low-margin businesses, French said. While they move a lot of products, he said retail profitability is less than many other similarly situated businesses. The D.C. measure could also affect other retailers like Best Buy and Macy's.
Business groups are also concerned a precedent-setting law in Washington, D.C., could see similar laws crop up elsewhere.
"The political forces that have brought the D.C. Council to the brink of economic suicide are the same political forces at work in other cities," said French.
There is ample precedent for living wage laws that impose minimum wages on companies doing business with state and local governments. More than 140 cities and counties across the country have enacted such laws that require businesses receiving government contracts or subsidies to pay workers a rate higher than the federal or state minimum wage.
In 2007, Maryland became the first state to enact a living wage bill, which currently requires employers with state contracts to pay either $12.49 an hour or $9.39 an hour, depending on where the services are performed.