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As the COVID-19 pandemic approaches the one year mark and we continue to see a K-shaped recovery, the issue of “hazard pay” for individuals in certain industries has been a topic of ongoing discussion. When first proposed in the HEROES Act last year, Democrats in Congress included federal funds to provide hazard pay. The HEROES Act ultimately did not pass. Now, however, some local jurisdictions are mandating unfunded hazard pay. While perhaps well-intentioned, this unanticipated and non-reimbursed increase in labor costs is having predictable effects.
As the term itself suggests, hazard pay means “additional pay for performing hazardous duty or work involving physical hardship” according to the U.S. Department of Labor, and the rationale for such pay is to incentivize employees who might otherwise not accept hazardous work. In some cases—such as working in a war zone—the justification for hazard pay is pretty obvious because there is little way to reduce risk.
Less obvious perhaps is working in a store, where policies and procedures to mitigate the threat of COVID can be implemented. Nevertheless, labor activists and allies are pressing local jurisdictions to force grocery stores and others businesses to provide hazard pay. Among them is the Brookings Institution, which issued a pair of reports in 2020 calling for hazard pay for those working in an “essential” position through which they could be exposed to the COVID virus.
Despite purporting to be about hazard pay, the Brookings reports appear to use that issue as a segue to demand higher wages in general, including a $15 minimum wage. In addition, they offer a lot of anecdotal story-telling and interviews with individual employees who—to no one’s surprise—say they would like to make more money, but little discussion of economic impacts on small businesses. Perhaps with the encouragement of the Brookings reports, some jurisdictions are moving forward with hazard pay mandates. In fact, the city of Seattle just adopted such a measure on February 1, and because it is emergency legislation, it took effect on February 3. Its one and only hearing was held on January 29.
The Seattle hazard pay ordinance imposes an additional $4 per hour increase in each employee’s wages at grocery stores with at least 500 employees worldwide. The legislation covers retail grocery stores in Seattle with more than 10,000 square feet, or stores over 85,000 square feet with at least 30% of the sales floor used for selling groceries, but it excludes smaller stores, such as convenience stores that may also sell groceries.
As one could expect, the push for hazard pay at grocers comes from organized labor, more specifically the United Food and Commercial Workers (UFCW). Like their allies in academia, what the UFCW seems to ignore is the economic reality that many employers—particularly in the grocery industry—face, which is that a sudden increase in labor costs may not be sustainable because their profit margins are extremely thin.
Indeed, in other jurisdictions that have enacted hazard pay, some employers have had to vote with their proverbial feet. For example, the city of Long Beach, Calif., recently adopted a similar $4 per hour hazard pay increase. Faced with this dramatic increase in costs, Kroger announced that it would permanently close two of its Long Beach stores.
Whether or not something similar happens in Seattle remains to be seen, but the experience in Long Beach provides a cautionary tale. Government action does not take place in a vacuum, and unfunded mandates like hazard pay can have negative consequences.