California leads the nation in implementing liberal economic schemes. The concentration of the entertainment industry means that California’s attitudes often influence other parts of the country.
One such scheme is the idea of “hero pay.” Many Southern California cities decreed that “essential” grocery workers be granted an extra four to five dollars an hour in these COVID times.
Leftist “Solidarity” Economics
Economists divide the landscape into two camps. “Market economics” relies on the free market to set wages, prices and operating costs. In the other camp, the government issue decrees determining economic conditions. This is called “demand economics.”
Demand economics seldom work. Too many variables exist for any government to control all of them. Individuals resist regulations that harm or inconvenience them. Unintended consequences abound because human reason cannot foresee future events.
California leftists, however, see no limits to governmental regulatory power.
Palm Springs City Council Member Geoff Kors explained the reasoning behind “hero pay.” He told KESQ televisionthat “There are so many frontline essential workers, who interact with the public inside a business, all day in close quarters, not being able to social distance.”
Montebello City Councilwoman Scarlet Peralta explained in the Orange County Register that “It is interesting to see cities jumping on board, and empowering to see the solidarity among our local leaders.”
Being Generous with Other People’s Money
On March 3, 2021, Los Angeles decreed that workers in chain-operated grocery stores must receive an extra five dollars an hour.
Los Angeles Mayor Eric Garcetti told KABC television that, “I absolutely 100% support the hero pay for our grocery workers, and with any good conscience, it shouldn’t raise food prices because grocery stores are one area that have record profits, more money than they’ve had before. I hope they will see this and maybe be inspired by it instead of being threatened by it.”
City Council President Nury Martinez echoed the mayor’s class-conscious rhetoric. “While these companies have seen massive profits, it has not trickled down to their employees. These companies can afford to pay the hazard pay, they just don’t want to.”
These Los Angeles officials did not check with their neighbors before they developed their theories.
Command Economics Fails in Long Beach
The City of Long Beach near Los Angeles passed one of the first such ordinances, which called for a four dollar an hour increase. It was approved on January 19, 2021.
In an Associated Press report, Long Beach Mayor Robert Garcia portrayed himself as a champion of the “oppressed” grocery store workers. “These folks that are working at these markets and these grocery stores are heroes.”
Within two weeks, the Kroger chain closed two stores in Long Beach. The company did not mince words.
“As a result of the City of Long Beach’s decision to pass an ordinance mandating Extra Pay for grocery workers, we have made the difficult decision to permanently close long-struggling store locations in Long Beach.”
The Washington Examiner noted Mayor Garcia’s rage, expressed on Twitter. “The Kroger corporation is closing two markets in Long Beach because our city is requiring temporary hero’s pay for grocery workers during this pandemic. Grocers are making record profits. We will go to court this month, and we will defend the workers vigorously.”
Reality Clashes with “Good Intentions”
The mayor needs training in economics. Healthy businesses can absorb unforeseen extra costs. However, no business closes locations that are making “record profits.” Shutting down a profitable outlet because management is angry at the city is self-defeating.
The website, ZeroHedge, points out that these workers were hardly at minimum wage status. “Thanks to California’s generous labor laws, those grocery store workers were making an average of $18 per hour, which works out to $24 per hour when you include the mandatory benefits they receive…. Profit margins in grocery stores are just about as thin as you could imagine because of the competitive nature of the industry. When you suddenly jack up their labor costs by more than 25% overnight, the outlets immediately become unprofitable or uncompetitive.”
The grocery business is complex. Its operating costs are massive and often unpredictable. According to The Food Industry Association, the average grocery store in the United States takes up 42,415 square feet of expensive enclosed real estate, excluding parking space. Most municipalities levy massive property tax bills for such stores.
These stores are open both earlier and later than many other retailers. The costs of lighting, heating, and air conditioning alone are enormous. Spoiled food is a massive problem since customers expect stores to have abundant stocks, while that food grows increasingly less salable every day. According to the Association, net profits in 2019 were about 1.0% of sales, down from 1.91% as recently as 2007.
The COVID crisis means that traditional grocery stores also face competition from online competitors who deliver to customers’ doors. The hero pay statutes do not cover their employees.
Can Bureaucrats and Courts Overrule Reality?
Thus, the Long Beach mayor has no reason to drag Kroger to court. The grocer has violated no law. A city cannot force a business to operate at a loss.
Indeed, politicians think that they can repeal the laws of economics. One such law is that businesses must make profits or cease to exist. When companies die, employees suffer. Some employees will never find work and become dependent upon the government’s “social safety net.” They cease paying taxes and become charges upon the public purse. Then, the leftists will impose higher taxes to create new programs that cause even more harm.
The COVID crisis triggered massive government spending paid by deficit spending. Businesses cannot operate that way. They need to pay today’s bills out of today’s receipts. Any use of credit is a short-term solution.
Yes, Mayor Garcia, the workers of Long Beach needed someone to look out for their interests. Your law granting them an extra four dollars an hour granted them an extra $160.00 a week at stores in profitable locations. However, a few dozen Kroger employees were not so fortunate. The $160.00 per week cost them their jobs. That is not Kroger’s fault. Until your brainstorm, Kroger kept those marginal stores open, and those employees had jobs. Now Long Beach has two more empty stores and many more unemployed people. And that, sir, is your fault.
Your policy hurt them far more than it could ever have helped them.
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