Fallout from DC’s minimum wage law: Wal-Mart abandons plans to expand and the city’s restaurants shed jobs

From Mark Perry.

"I wrote on CD last week that some early evidence suggests that DC’s minimum wage law is having a pretty devastating effect on the city’s restaurant employment and presented some of that evidence in the top graph above [I put it below-CM]. Looking at the city’s monthly restaurant employment over the last decade and comparing DC food jobs to the surrounding suburbs in Virginia and Maryland, I concluded that: a) the city’s restaurants survived the Great Recession pretty well without any major job losses, especially compared to the loss of nearly 6,000 food jobs in the surrounding suburban areas, and b) the city’s restaurants are now facing a much bigger struggle following the city’s passage of a minimum wage law in January 2014 that will raise the District’s minimum wage to $11.50 an hour in less than six months. At the same time, the DC suburban restaurants are booming with strong hiring last year of nearly 5,000 new food jobs that brought the area’s restaurant employment to an all-time high in November (see top chart)."

The bottom chart is new and brings another perspective to the struggle DC restaurants are now facing. In the five-year period between January 2010 and December 2014, DC restaurants were hiring an average of 187 new food workers every month. Last year though, restaurant hiring stalled out, likely due to rising labor costs, and the city’s food jobs fell by an average 21 every month in 2015 (through November). If jobs had continued to be added at the 2010-2014 rate of 187 per month, there would now be nearly 50,000 jobs instead of the current level below 48,000, which is a gap of more than 2,000 DC food jobs that weren’t created last year due most likely to the current $10.50 minimum wage along with the pending increase to $11.50 on July 1. Add to that known damage of rising labor costs, the additional damage that could come from the successful passage of a $15 minimum wage ballot initiative scheduled for this November, and you’ve got an economic reality that just doesn’t support restaurant expansion in DC. The rising minimum wages in DC and around the country ultimately aren’t really so much about politics as they are more simply about “restaurant and retail math.” And that math of $10.50, $11.50 and $15 an hour labor costs just doesn’t work well for the profitability and survival of restaurants and retailers in a hyper-competitive industry with razor thin margins.

And the fallout from DC’s “economic death wish” — a city minimum wage that might soon be $15 an hour — isn’t only restricted to the District’s restaurants. It is now being reported that Wal-Mart will abandon its plan to open two new supercenter stores on the city’s east side, citing the District’s rising minimum wage, currently at $10.50 an hour, rising to $11.50 in July, and then possibly going up to $15 if the proposed ballot measure is successful this November. That kind of “retail math” just doesn’t work.  Here are links to several news reports:

1. Washington Post. “District leaders furious Walmart breaking promise to build stores in poor neighborhoods.”

2. Investor’s Business Daily. “D.C. Minimum-Wage Woes Grow As Wal-Mart Balks.”

3. Forbes (Tim Worstall). “DC’s Minimum Wage Really Does Cost Jobs At Walmart.”

Bottom Line: Expect more economic fallout in DC and other US cities with minimum wage laws that make doing business for restaurants and retailers in those cities economically unfeasible. Whether it’s a small local diner or a large retailer like Wal-Mart, restaurateurs and retailers operate in extremely competitive, “cutthroat” industries with razor-thin margins of 1-6%, leaving very little, if any, room for absorbing labor cost increases of 50-100% that many businesses who hire minimum wage workers are now facing. The economic reality is that restaurants and retailers don’t have a “magic pile of money sitting around” that voters and politicians assume must exist when they burden those businesses with significant, government-mandated wage hikes. The reality of the minimum wage is very simple: it’s one of the most effective business-repellents a city can implement, which is a hard economic lesson that DC should now be learning before it does further economic damage to the city with the pending $15 an hour ballot measure."