Why the Chicago’s City Councils vote to raise minimum wage for big box retailers to $10 will hurt the people it is meant to help.

Yesterday the City Council of Chicago passed a bill that will require a number of big box retailers like Wal-Mart to pay a minimum wage of $10 an hour to their employees. The goal of the bill is to raise the wages for the slice of the city that has the lowest income.

The problem is that Chicago’s City Council is failing to see an important reality that Adam Smith had realized centuries ago, that wages are a reflection of education.

By raising the minimum wage to $10 the City Council will crowd out those people who need the job the most and here’s why. At say $6.25 an hour certain responsible educated people like stay home wives and those in early retirement might not be enough to get them to come fill out an application even though Wal-Mart would love them too. Instead those that apply are people that $6.25 is an attractive wage to get them out of the house, generally those less educated. However when you artificially raise the wage to $10 it now may be enough for that stay at home spouse or retired person to go apply as the pay is worth their time. The result is the unskilled that currently fill the job in the store are crowded out, as Wal-Mart would rather hire the educated person who is less likely to steal and more likely to give better customer service, if they are going to be forced to pay $10.