Politics from the Palouse to Puget Sound

Wednesday, July 12, 2006

"Is Wal-Mart Good for the American Working Class?"

Slate has been hosting an online dialogue between Jason Furman, the former economic policy director of the Kerry-Edwards 2004 campaign and Barbara Ehrenreich, a pretentious socialist author who thinks she is the savior of the working class because she worked incognito at minimum wage jobs (including Wal-Mart) for her book Nickeled and Dimed. Furman, as you may remember, wrote a paper detailing how Wal-Mart is progressive and how it helps the lower class.

Some quotes:
A range of studies has found that Wal-Mart's prices are 8 percent to 39 percent below the prices of its competitors. The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn't mean much for those of us in the top fifth of the income distribution—we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that's a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household incomeunless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.


I also confess to not knowing how to figure out what Wal-Mart "ought" to pay or can "afford" to pay. Wal-Mart employees are paid more than about one-third of American workers. Does that make Wal-Mart a nicer, better company than the lower-wage employers? Does it make Goldman Sachs—with its average compensation in the hundreds of thousands of dollars—a friendlier, more moral company than Wal-Mart? And if our concern is low wages, why don't we focus on the roughly 40 million jobs that pay even less?

At this point in the conversation, someone invariably brings up Costco, a wonderful company that pays its workers substantially more than Wal-Mart does (and pays its CEO substantially less than Wal-Mart does). Costco also has roughly half as many employees relative to its sales volume as Wal-Mart does. Now imagine what it would be like if Wal-Mart were more like Costco. Instead of having 1.3 million employees, it would have 650,000. These employees would be paid more and stay in their jobs longer, allowing Wal-Mart to be choosier about whom it hires. And would the other 650,000 people, the less choice picks, so to speak, be better off? I have no idea. Do you?


To appreciate the extent of our progressive policies you need look no further than Wal-Mart. A single mother with two children making $18,000 a year at Wal-Mart gets $4,869 back from the EITC and refundable child tax credits. Her children are probably eligible for Medicaid, either instead of Wal-Mart's insurance or as a wraparound to pick up the tab for some of her co-payments. In addition, she might get food stamps and housing vouchers, and can send her children to a public school that gets additional funding under Title I.

The anti-Wal-Mart coalition objects to this. Here's Wal-Mart Watch on the issue:
Wal-Mart is one of the biggest recipients of corporate welfare in the world. Year after year, Wal-Mart's low pay and insufficient employee benefits programs leave hundreds of thousands of Wal-Mart workers to rely on Medicaid, food stamps, and public housing assistance to make ends meet. Call it the "Wal-Mart Tax." It costs American taxpayers at least $1.5 billion in federal tax dollars every year, and hundreds of millions more in state and local subsidy costs.
The other leading anti-Wal-mart group, Wakeup Wal-Mart, has a clock on its home page showing how much of "your money" has gone to Wal-Mart this year.

As far as I can tell, these are cynical attempts to expand the appeal of the case against Wal-Mart, moving it beyond an appeal to the atavistic anti-corporate instincts of some progressives by playing on the atavistic anti-welfare, anti-government, anti-tax instincts of some conservatives.

Does anyone really think that food stamps, Medicaid, and housing vouchers allow Wal-Mart to line its pockets by paying its workers less?


Let's compare this to imposing a living wage. For the sake of argument, ignore efficiency and the impact on employment (not a bad assumption at Kennedy's proposed $7.25 an hour, but to benefit any Wal-Mart workers you would need to support $10 or $15 an hour, at which point it would be a terrible assumption).

Where do you think this living wage would come from? It's too late to get the money from the Walton fortune, which in any event would only be enough to raise wages by $1 an hour (annualized). We could eliminate Lee Scott's salary and use the money to pay an extra 1 cent per hour to Wal-Mart's employees. You would have no way to legislate that Wal-Mart takes this money out of its profits, even if you thought these profits were sufficient. (And it's far from obvious that they are: Wal-Mart's profits per employee are lower than the economy-wide average. For example, Slate's owner, the Washington Post Company, makes $19,000 from each employee. Wal-Mart only makes $6,000 from each employee.)


Finally, if this was just about making Wal-Mart pay higher wages, I wouldn't mind. But it's not. The top of Wal-Mart Watch's Web site prominently features instructions on "How to keep Wal-Mart out of your hometown." If I heard that Wal-Mart was coming to my neighborhood, New York's West Village, I might rush for my mouse. But I wouldn't kid myself into thinking that my opposition had anything to do with helping the poor. If anything, I would feel guilty that I was preventing moderate-income New Yorkers from enjoying the huge benefits that much of the rest of the country already knows so well.


So, you want to go further to pressure Wal-Mart to raise wages and benefits, to make it a better company? If that's all it was about, count me in. But the principal methods are preventing the spread of Wal-Mart's benefits to new communities (like my hometown, New York City), living wages at $15 an hour, retail-specific minimum wage rules like Chicago's and Maryland's pay-for-play that target a single company that already provides decent health benefits.

The collateral damage from these efforts to get Wal-Mart to raise its wages and benefits is way too enormous and damaging to working people and the economy more broadly for me to sit by idly and sing "Kum-Ba-Ya" in the interests of progressive harmony. Not to mention the collateral damage to rational thought from many of the arguments made by the anti-Wal-Mart community, including the arguments I noted in my last post that undermine food stamps and the progressive taxation.

Part of you wants to believe that your solutions would benefit everyone. In your last post, you suggested that if Wal-Mart raised its wages, it would get more customers. I don't have any great business advice for Lee Scott, but he's probably already figured out that if he pays his workers another $1,000, they'll spend at most $250 of it at Wal-Mart—of which only $10 will be profit for Wal-Mart. Hardly a way to grow your business.

Part of you is willing to accept that the solutions are zero or negative sum ("class war," as you put it). If I thought the question was a trade-off between efficiency and equity, it would be worth thinking about. But, as I've discussed extensively over the past week, I don't believe this is the right analysis. Much of the costs of, say, a living wage would be passed on to Wal-Mart's shoppers, a group that isn't much better off than its employees. Fewer people would be able to get jobs. And we would threaten the dynamic and competitive economy that has generated such enormous productivity gains—and low prices—over the last decades. (Part of the reason your solutions won't work is that corporations aren't nearly as powerful as you seem to think. Wal-Mart, for example, is facing intense competition from Target, Costco, and other companies and is, as you noted, having a tougher time lately—competition that leads to lower prices for consumers and higher wages for workers.)
It's a good read. Compare Furman's solid economics, as an admitted liberal, with Ehrenreich's typical uninformed, Wal-Mart hating, socialist snob rhetoric.

Technorati Tags:

No comments: