Thursday, August 03, 2006

In Favor of Urban Minimum Wages

In this post Becker is complaining about a minimum wage law in Chicago that would be targeted at “Big Box” retailers. He uses the same basic general arguments used by all conservatives against minimum wage laws: it will simply encourage some inefficient substitution towards capital or labor outside the jurisdiction of the wage law and push up prices. He adds his Beckerian political twist by arguing this is insane for the poor citizens of Chicago to do because it will force the stores to the suburbs or encourage substitution of capital and higher skilled workers.

I don’t think either case is that plausible. How precisely could someone substitute more capital in a retail store? Robot stock boys and automated floor sweepers?

There is a location premium that comes from being in an urban center, especially one like Chicago. I would imagine that any difference between store profitability in the city and out in a suburb are accounted for in rental prices.

So what does this boil down to? Minimum wage laws of any kind in a dense urban area allow labor to capture more of the location premium at the expense of land owners. It creates an automatically higher cost for labor in these areas which depresses the amount businesses will be willing to pay in rent. This lowers rental prices for tenants and exerts upward pressure on wages.

I think this is especially applicable to urban areas, however I am too lazy to think about its broader applicability right now.


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