A Non-Heroic Unintended Consequence 

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

Natural laws, and especially the laws of economics, can never be escaped. 

What’s the old adage? Oh yeah, “You can run, but you can’t hide.” This is particularly true of the law of unintended consequences, which basically states that the actions of people, and especially of government, always have effects that are unanticipated or unintended.

The latest example of this law in action comes from my old stomping grounds, Long Beach, California. During last night’s local Southern California news broadcast, there was a story that Kroger (KR)-owned grocery chains Ralph’s and Food 4 Less would close 25% of their Long Beach stores because of the high costs associated with “Hero Pay.” 

What is “Hero Pay,” you ask? It’s a new Long Beach city ordinance requiring companies with over 300 employees nationwide to pay employees an extra $4 per hour. For Kroger, that means a huge boost to its operating costs, and one that they flat-out decided was not worth it. Here’s what a Kroger company spokesman said about its decision:

“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 irreparable harm that will come to employees and local citizens as a direct result of the City of Long Beach’s attempt to pick winners and losers is deeply unfortunate. We are truly saddened that our associates and customers will ultimately be the real victims of the city council’s actions.”

Now, the law of unintended consequences doesn’t get more quintessential than this. 

I say that because Long Beach city officials didn’t intend to lose 25% of Kroger stores when they passed the well-intentioned ordinance mandating higher pay for grocery store workers. What they intended on doing was to acknowledge the role grocery store workers are playing during the pandemic, and we know that because of the very name of the ordinance, “Hero Pay.”

Yes, essential workers and those who couldn’t just hunker down and work from home the way so many of us have been fortunate enough to be able to during this pandemic are deserving of tremendous respect and admiration. In fact, I definitely consider medical professionals, first responders, restaurant workers and yes, most definitely grocery store workers, heroes of this pandemic. Without their valiant efforts, society would have been far less functional over the past year. 

Yet acknowledging that a group of workers is heroic does not allow government to intervene in the marketplace between an employer and an employee regarding how much compensation that employee gets. 

If Kroger management wants to provide additional hazard pay to its brave workers (which they have, including paid emergency leave), then they should. Yet if the economics of higher Hero Pay have an adverse effect on the company’s operating cost, then they shouldn’t be compelled by law to absorb the negative consequences. Nor should Kroger be somehow forced to stay open. After all, does Kroger operate the stores, or does the Long Beach city council? 

Unfortunately, the new push nationwide on the labor cost front is for a bump in the federal minimum wage to $15 per hour. That’s more than double the current federal minimum wage of $7.25 per hour. Now, President Biden and House Democrats want this new minimum wage to be the law of the land, and they’ve included this as a part of the next COVID-19 stimulus bill. 

Yet the problem here is the law of unintended consequences, as this hike in the minimum wage would almost certainly be the kind of mandate that many business owners would find crushing, particularly at a time when many are just barely holding on to life after the roughly 11 months of mandated closures, social distancing, masking and other pandemic measures that have constrained commerce. 

As writer Billy Binion of Reason.com puts it, “It’s richly ironic that a heightened minimum wage would be yet another mandate that business owners might need help counteracting. Relief from the relief.”

How about if we allow businesses to determine the value of their employees, and we let the market dictate what stores stay open, how many employees they need and at what hourly wage they can charge? 

This is the principle commonly referred to as “freedom” — and it works. 

*****************************************************************

Into The Know 

Exclusive  Wall Street Rollercoaster Rides Coming Again: Buckle Your Belts

Everything’s scattered, but nothing is lost

Anything good, well it has a high cost

Everyone here will someday be dust

So let’s go, into the know…

— Jim Woods, “Into The Know” 

This week’s quote is the chorus lyrics to the song “Into The Know,” written by yours truly. The song is about discovering who you are and what you really want out of life and accepting the fact that you will struggle, and you will be forced to make tough decisions in what is an all-too-brief existence. Yet through it all, the drive for self-knowledge and self-realization can and should serve as your spiritual fuel — if you are bold enough to let it.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods

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