Thursday, July 27, 2006

Chicago: We don't need no stinking stores!

Patrick McIhleran outlines the likely outcome of the Chicago City Council's decision to require certain big box retailers to pay employees at least $ 10/hr in salary and $ 3/hr in benefits by the year 2010.

What's interesting about it is that almost half of Chicago's black council members voted against the proposal. The notion behind the proposal is that a retailer like Wal-Mart (its principal target) has "too much" margin and can afford to give up some profit.

But that's not the case. Wal Mart has relatively small operating margins. Its business model is to figure out how to provide basic quality goods at really low prices to low and moderate income people.

Council members say that the average worker at a Wal-Mart store makes a bit over $7/hr. Let's assume that the ordinance is designed to raise salaries for store employees about $3/hr (we'll put aside the benefits for now.) Worldwide, the company has 1.8 million employees. Let's say knock off the top, oh say, 200,000 as highly paid. If you raised the average salary and benefits of the remaining 1.6 million by, say, $ 5400/yr (that's much about $3/hr for a full time worker), you'd wipe out most of the company's net income.

While you or I might not care about that, the company's shareholders do. It ain't going to happen.

So either Wal-Mart's are going to be more expensive in the city of Chicago - depriving its low income residents of the benefits of cheap goods conveniently located - or there just aren't going to be any - or many - stores in the city.

But don't we all feel good about the pols' "compassion"?

1 comment:

jp said...

The solution to this type of problem maybe a voter qualification test.