Wednesday, February 3, 2021

Wage Floors move Grocery Workers to Lower Valued Uses

The LA Times reports that, when the city of Long Beach imposed $4 an hour additional hero pay, some super markets decided to close instead.

Kroger, the owner of Ralphs, Food 4 Less and other retailers, said Monday that it would close two stores in Long Beach in response to city rules mandating an extra $4 an hour in “hero pay” for grocery workers during the COVID-19 pandemic. In addition to the Ralphs, the company will close a Food 4 Less on East South Street. The moves will affect 200 workers. 

During the pandemic, grocery workers,and other essential workers, are "heros." They are taking on a greater risk of infection and a larger share of them are becoming infected. We usually expect wages to include a risk premium. Usually these are the result of the market equilibrating to a higher wage from a decreased supply of workers willing to take on this risk. In California, collective bargaining facilitated finding a mutually agreed upon wage. 

No government needs to impose these premiums on most labor markets. Since the article suggests that grocery jobs are hard to find, the city's new wage floor appears to be higher than the market wage. Some of the Hero Pay would be passed on grocery consumers in the form of higher prices and some would be passed on to owners in the form of a lower return on investment. Some consumers would patronize now cheaper stores in neighboring cities and some owners would allocate their capital to other, now higher return, projects. Not all stores remain profitable. The closed stores are of lower valued use than opened stores.

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