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Thinking Outside the Big-Box

By Conan Milner
Epoch Times Chicago Staff
Jul 21, 2006

TAKING AIM: Last week Target announced that they will pull out of plans for new Chicago stores if the city passes an ordinance that would have retail giants pay employees a $10 minimum wage with benefits. (Justin Sullivan/Getty Images)

Last month the Chicago City Council's Finance Committee voted 15 to 6 in support of having retail giants within city limits pay employees a $10 minimum wage with benefits. The city council is set to have their final say on the ordinance next week, and 49th ward Alderman Joe Moore—one of the measure's main sponsors—has been confident that the bill enjoys substantial support. If passed, the proposal would set a precedent for living-wage laws across the county.

Yet a strategic move from the Minneapolis-based Target Corporation could put this support in jeopardy. Last week the big-box chain threatened to pull out of plans for new Chicago stores (as well as closing existing ones) if the city ordinance gets through.

The city's measure posed to "big-box" stores (referring to retailers with spaces of 90,000 square feet or more and annual company sales in excess of $1 billion) has largely been aimed at Wal-Mart—a corporation eager to spread into the urban market, but leery of the looming wage limit proposal. Until now Target has remained relatively silent on the issue—even with six existing stores across Chicago. Yet, as the ordinance's passing draws nearer, the relevance of shelling out for a higher minimum wage seems to have roused the sleeping giant.

Big Box Bites Back

Wal-Mart has plans for 20 new stores across the city, but they say it won't happen if the big-box ordinance becomes law. With Target joining in opposition, concern grows for whether Chicago can withstand fallout from the proposal.

Alderman Carrie Austin of the 34th ward, Emma Mitts of the 37th and others have expressed reservations about the ordinance after Target's announcement last week. While these aldermen ostensibly support the idea of a living-wage, there is real concern that their constituency cannot afford the revenue and jobs lost if these big stores choose not to stay in Chicago. Others suggest, however, that Target's statement is merely bluffing and blackmail.

"I hope the city council does not give into these threats and scare tactics," says Alderman Moore.

Chicago's big-box ordinance has been on the table for some time. Yet, the measure has been stalled by critics who claim that the proposal will cost jobs in areas of the city that need it desperately.

Aside from the lower prices that would certainly be welcome in impoverished areas, the interest seen in working at a new Wal-Mart has been nothing less than extraordinary. Earlier this year, nearly 25,000 people applied for the 300-plus jobs offered at a recently opened location.

After many months of heated negotiation to build on the city's south-side, Wal-Mart instead chose to open their new location just one block outside of Chicago boundaries, effectively avoiding imposed "living-wage" laws like the big-box ordinance. While the store indeed employed some from the city, many were upset to see such a significant revenue generator, originally planned for a Chicago neighborhood, go to the adjacent Evergreen Park.

But supporters of the big-box ordinance are convinced that Wal-Mart will eventually have to concede to Chicago's wage demands. Having saturated the suburban market, they argue, the big city is the only place left for them to go.

"These big-box retailers are continuing to locate in urban areas because there is a vast untapped market for them," comments Alderman Moore.

False Job Growth

Many detractors of the big-box bill say it's bad for business. Mayor Daley also opposes the ordinance claiming that the city will lose up to 8,000 jobs because the proposal keeps the big retailers away. Yet some suggest that the stores would not really have such a positive effect on the city's employment opportunity.

"Look at the experiences of other cities that have enacted living-wage ordinances," observes Alderman Moore, mentioning similar laws passed in Santa Fe and San Francisco. "Since they've enacted [those] ordinances they've continued to see job growth… People say a decent wage is bad for business—that's just not the truth. If you take that to its logical extent, why don't we just pay people $2 a day?"

In 2004, soon after the big-box ordinance was introduced, the University of Illinois at Chicago's (UIC) Center for Economic Development released a study analyzing the impact that such a proposal would incur.

The study examined the marketing efficiency of the big-box companies in generating an extremely high sales volume per employee. With a combination of low wages and massive buying power, stores like Wal-Mart and Target offer bargains below that of smaller counterparts. In turn, these competitors are unable to keep pace with the popularity and prices of the big-box stores and are driven out of business. Over time these large retailers become the main source for selling goods in a community that was once serviced by several stores.

"Such 'big-box' stores will eliminate more jobs than they create," the UIC study concludes. "In an inner-city context, the lost jobs will generally also be in the city. Big-box stores will therefore generally reduce, rather than increase, employment opportunity…. In high unemployment and low-wage communities, jobs, wages, and benefits are the key economic development priority. As the only possible benefit of big-box development lies in improved job quality (as the number of net retail jobs will decline), it makes sense to make such development contingent on sharing more of the benefits of greater retail efficiency with local workers who will spend their increased earnings and thereby further stimulate the local economy."

Still, opponents of big-box say that if the measure passes it will only be a matter of time before it is overturned in the courts on the grounds that the ordinance is unconstitutional. They reason that it is unfair to single out one kind of retailer for such a law. Alderman Moore, however, does not believe this is a concern.

"We have the assistance of skilled attorneys in drafting this ordinance with an eye toward insuring its constitutionality," explains Alderman Moore. "I'm very confident that it will withstand any court challenge."