More California cities experiment with "hero pay" leading to predictable results

Back in early February, we looked at a story out of Long Beach, California where the City Council passed an ordinance requiring large, chain grocery stores to provide workers with an extra four dollars per hour as “hero pay” during the pandemic. That immediately resulted in two of the biggest Kroger stores in the area closing their doors permanently, putting hundreds of people out of work. At the time, I noted that a number of other large municipalities in the Golden State were either already drafting or considering similar legislation. But having seen what happened in Long Beach, they thankfully had sufficient warning not to make the same mistake.

Or so you would have thought. But as it turns out, you’d have been wrong. Los Angeles plunged ahead and passed the same type of law, only they upped the ante and made it five dollars per hour. Try not to faint from shock when I tell you that three more Kroger stores shut down in short order. If only someone could have somehow foreseen this and avoided all of these closures. (Washington Examiner)

The list of Southern California stores that have been forced to close over government-implemented “hero pay” hikes has grown to five after three more locations announced they will close their doors.

Two Ralph’s locations and one Food 4 Less location, both owned by the grocery giant Kroger, in West Los Angeles will close due in part, the company says, to a Los Angeles City Council mandate requiring some employers to provide an additional $5 per hour in hazard pay for workers on the “front-lines” during the coronavirus pandemic, according to Fox 11 Los Angeles.

“The mandate will add an additional $20 million in operating costs over the next 120 days, making it financially unsustainable to continue operating underperforming locations,” Kroger said in a news release.

Thanks to the City Council’s efforts to “help heroes” during the pandemic, 289 more people lost their jobs overnight. It’s also worth noting that these aren’t minimum wage jobs for students. Thanks to California’s generous labor laws, those grocery store workers were making an average of $18 per hour, which works out to the equivalent of $24 per hour when you include the mandatory benefits they receive. On top of that, those neighborhoods will now be without one of the larger grocery shopping options with the most diverse range of products.

The only winners here were the smaller grocery stores in those communities. Because L.A. modeled its ordinance on the one enacted in Long Beach, the rules were not applied equally. The “hero pay” requirement was only imposed on larger, national chain stores. Perhaps some of those smaller stores can hire a few of the newly unemployed clerks from Krogers.

Members of the Los Angeles City Council took another page out of Long Beach’s book, talking about the greedy chain stores and their “record profits.” But as we discussed last time, 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. Kroger knows this and isn’t going to wait around and keep bleeding off revenue while waiting to see if the City Council comes to its senses.

This is yet another case of municipal mismanagement, as bumbling bureaucrats dream up ways to “do the right thing” during the pandemic. Sadly, they decided to start tinkering with bits of the private sector’s machinery when they clearly didn’t understand how it operates.

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Jazz Shaw 5:31 PM on December 01, 2022