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July 27, 2006

Groundbreaking Chicago Retail Wage Law

By a vote of 35 to 14, the Chicago city council yesterday approved a new ordinance requiring large retailers in the city to phase in a living wage for their employees of $10 per hour plus $3 per hour in benefits-- the highest minimum wage established for any industry sector in the country.

If signed by the mayor, this law would not only raise pay for tens of thousands of workers in retailers such as Wal-Mart, Target, Toys R Us, Lowe's and Home Depot, but will open up a new arena for activists to engage the wage issue for a broader range of workers than the minimum wage.

As discussed at Progressive States , this law is part of an emerging trend of states and local governments establishing different, higher minimum "living wage" standards for selected industrial sectors, from larger employers to tourist zones to hotels. While innovative in the modern era, the Chicago law is a return to the historic practice of federal and state laws creating different minimum wage levels both between and within different industries.

Because the Chicago ordinance allows employers to pay higher wages in lieu of paying the increased benefits required under the law, the law is clearly not preempted by federal ERISA law, as this legal analysis by the Brennan Center explains. “Every federal court of appeals that has reviewed a wage law like the Chicago ordinance," explains Paul Sonn, deputy director at the Brennan Center, "has upheld the law under ERISA.”

And while large retailers covered by the ordinance are making noises about not building new stores in the city, the reality is that after Santa Fe created a living wage of $9.50 per hour for large employers, Wal-Mart asked for approval to build a new Supercenter. The fact that leading retailer Costco already pays all its employees a living wage of $10 per hour plus benefits nationwide emphasizes that "big box" retailers can thrive paying a living wage. See this economic analysis of why the expansion drive by large retailers means higher wage standards will not deter their growth.

Full disclosure-- I drafted the original version of the ordinance back in 2004 when I was back at the Brennan Center, so I have a proprietary interest in this model, but it does bridge the discussion on wages between the lowest wage workers receiving the minimum wage and prevailing wage laws involving often much-better paid construction workers. As noted above, historically there were often different minimum wage rates for different industries, and even larger and smaller employers within the same industry. It was really only in the 1970s that the minimum wage became uniform for all kinds and sizes of firms-- and coincidentally began its decades long slide in inflation-adjusted value.

So Chicago may be pointing us to the next wave of the wage debate, looking at different industries and size firms to establish higher wage standards where policymakers deem the industry can absorb higher wages without loss of job growth. Of course, that is what unions delivered historically industry by industry, but the Chicago-style approach may fill in the gaps to raise wages beyong the minimum wage.

Posted by Nathan at July 27, 2006 02:08 PM