Class Warfare

[Gaspar]

If every Wal-Mart employee in America made $40 more per week, it would cost Wal-Mart $3.75 billion dollars. The stores showed $422 billion in revenue.

Sharing less than 1% of their revenue would mean a $2,000 pay raise per year for 1,800,000 employees. That would change lives and many of those dollars would be spent right back in their stores.

This was the subject of a case study I had in economics about 20 years ago.  That was during the big stir about Walmart unveiling Super Centers in small towns. The first of these just just opened as a test in Wagner Ok I think.  We used Walmart and UPS as case study subjects and ran scenarios where we manipulated price and employee salary/benefits packages.

Basically this is what the result of your proposal yields:

Lets say that Walmart increases their hourly amount. . .currently they pay associates an average of $8.80 an hour (with a scale that goes up to $19 an hour based on performance).  That's almost a dollar more than Target stores $7.96, and significantly more than the minimum wage that your local grocery/retail/tire-lube store pays (Reasor's $7.00/hr, Hibdon $8.25/hr, Kohl's $8.04/hr).

If Walmart, who is already accused of shutting out local competition by offering low low prices and excellent service, increases their pay arbitrarily to $9-$20 an hour, just to make some social statement, their competition would have to do likewise to remain somewhat competitive in the jobs market.  To do this, they would have to increase the prices of their goods and services, and further the divide between them and Walmart, or they would have to operate with less staff, or go out of business.

This scenario would probably be a great move for Walmart as that it would not cut into their profits that much, but only for the short-term.  The problem is with sustainability.  Community is very important to any business.  Walmart has been accused of doing exactly the opposite by moving into communities and offering product at prices that small retailers cannot compete with.  At the same time, they have been heralded with moving into the exact same communities and providing employment in declining local economies.  They have literally saved towns like Mustang and Yukon where there had been a mass exodus of population due to lack of employment and lack of staple retail offerings.  When other retailers are fleeing, that's when Walmart sees opportunity.

So, what would an artificial increase (any increase above the current competitive wage landscape) in wages do?  would probably shut down the local grocery/hardware/clothing/electronics/tire-lube/pharmacy/garden/fuel retailer who can't afford to pay that much, and who already struggles with benefit packages.  Small businesses that compete with Walmart by offering better customer service would have a hard time keeping prime employees who could make more money, work less hours, and get more benefits by working at the local Walmart. This would drastically change the economy in small towns like Wagner, Tahlequah, Mustang, Yukon, and hundreds of others where the Walmart stores are the primary competition for ALL of the other retail offerings combined. 

Besides the effect on local competition, this would have a significant effect on businesses that do not compete directly with product, but compete only in the job market. Everyone would want a job at Walmart rather than working at the local diner, Ace Hardware ($8.67/hr), or virtually any local business.

If Walmart were to offer salaries that were not commensurate with similar positions in the local economy, that would be irresponsible.  Everyone likes to pick on Walmart because they are a big blue and yellow target.  They are a massive employer, and they make a ton of profit.  They, however, are not irresponsible, and that is why they have survived and remained so profitable and reliable as an investment for years. 

Lets turn this concept on its ear. . .The primary reason that their are so many Walmart employees that qualify for food stamps is not the fault of Walmart.  If a woman works the register for $8.80/hr at Walmart, has 2 kids, no education, and a spouse that does not work (or no spouse) you can't blame Walmart.  In fact, if anything has taught me, my experiences with Walmart indicate that the retailer hires, trains, and advances people that couldn't find employment anywhere else! You can't fault the employer for the life choices of the employees. 

Keep in mind, if you have 2 kids and make $10/hr or less, you qualify for food stamps!. . . So to use that as a barometer for pay scale is not saying much.

[Conan71]

When WalMart runs out of workers willing to work for $8.25 per hour (not 9) they will start to raise their wages. And not before. It is happening in other parts of the country where workers are in short supply. Better companies like Whole Foods and Costco pay much better than WM. It has nothing to do with their skill sets however. I have worked those jobs the last few years and was stunned to find out how many of the workers have 2-4yrs of college and had to pull out of college or change careers for one reason or another. Pre-law students, pre-med, business students are common place, so are semi-retired and just plain stupid.

You either believe in supply and demand or you don't. WalMart is playing by the rules laid out and should not be penalized for their success. However, neither they or their competitors should they be getting taxpayer subsidies.

The answer to our income disparity doesn't reside in the operations of WM.

Great post, AM.

The only correction I'd make on it is that the sort of tax subsidies WM is getting are likely property tax and state-based tax credits for job creation programs, the sort of oxycontin all major employers look for now when they build or expand in a new area.  Wal-Mart can act as an able anchor in bringing additional retail establishments to a previously underserved area and create more jobs than the local five and dime was ever capable of doing.

Along those lines, the sort of traditional retailers that Wal-Mart has pushed out of business over the years didn't offer high wages to their employees either.  Those retailers also typically could not offer insurance or retirement plans, something Wal-Mart is able to do.  If anything Wal-Mart has probably improved the condition of the average American retail worker via more jobs created and better benefits.

I'm no Wal-Mart fanboy.  I try to avoid Wal-Mart at all cost, but there are times they are more convenient than other places.  

[AquaMan]

That was a pretty good analysis Gas. It doesn't take into account other variables like retailers who do not rely on price alone as their draw. Many businesses compete well with WM because they have geographical, demographic or product superiority as well as better service. They also treat their suppliers better. Pettys, Whole Foods, Costco.

It also doesn't factor in the effect that the increased pay scales would have on consumption patterns in the small community. Even if it forced competitors to either pay up to the new level, change their model or shut down and even if that effect may only be temporary. That extra money in the pockets is a stimulator for the community, which gets more bank deposits, more new car sales, etc. It acts like a private sector stimulus package. Eventually it levels out again but hopefully there is some residual growth.

As long as WM learns from the past failures of leading retailers like Sears, Penneys, K-Mart, that they must know what their business is and be prepared to evolve with changing demographics, then they will remain the king.

[AquaMan]

Great post, AM.

The only correction I'd make on it is that the sort of tax subsidies WM is getting are likely property tax and state-based tax credits for job creation programs, the sort of oxycontin all major employers look for now when they build or expand in a new area.  Wal-Mart can act as an able anchor in bringing additional retail establishments to a previously underserved area and create more jobs than the local five and dime was ever capable of doing.

Along those lines, the sort of traditional retailers that Wal-Mart has pushed out of business over the years didn't offer high wages to their employees either.  Those retailers also typically could not offer insurance or retirement plans, something Wal-Mart is able to do.  If anything Wal-Mart has probably improved the condition of the average American retail worker via more jobs created and better benefits.

I'm no Wal-Mart fanboy.  I try to avoid Wal-Mart at all cost, but there are times they are more convenient than other places.  

Sears had a good employee package. Many of their long term employees were able to buy their stock cheap through payroll deduction and since they were so large their insurance costs were low. After 20 years of service their stock allowed many to retire in comfort. I interviewed with them and Kroger out of college and was pretty impressed. They prided themselves on utilizing technology to lower their costs and they truly respected their employees. All that came to a crashing end in the 80's when WM and a more price conscious generation emerged. Many of the Sears and K-Mart management migrated to WM. Sears and the others had only disdain for them and the small cities and markets they served. WM had its roots there and grew where they were planted.

As far as tax enticements to them, one has to wonder why we disrespect our small employers who need the help worse than WM but can never get their stroke. But that is the nature of the world...those who need worst are least likely to get! Would like to see such taxpayer funded enticements disappear to make a more level field.

[Conan71]

Would like to see such taxpayer funded enticements disappear to make a more level field.

I agree.  Until it becomes a consistently lousy investment, that will never end.

[Red Arrow]

I am not surprised that you are surprised. You are proud of your Engineering degree but I am proud of my Business degree. This is not politics, this is business. Walmart may own their jobs, but they don't own the labor to execute them. Most non business degreed people seem to misunderstand that concept. The market (eventually) determines labor rates.

My only real gripe against Business people is when short sighted goals are made at the expense of sustainability. 

[Townsend]

My only real gripe against Business people is when short sighted goals are made at the expense of sustainability. 

Pretty much sums up the 46th state.

[Teatownclown]

[nathanm]

I would like to know which Wal-Marts pay part-time associates $8.80 an hour. I wouldn't mind making a few extra bucks on the side.

[Teatownclown]

I would like to know which Wal-Marts pay part-time associates $8.80 an hour. I wouldn't mind making a few extra bucks on the side.

Zero's favorite newscaster claimed that Mitt made $40,000 an hour giving speeches....

[nathanm]

Zero's favorite newscaster claimed that Mitt made $40,000 an hour giving speeches....

That's even better, but I'm not yet willing to lie through my teeth in public, even for that kind of money.

[Teatownclown]

[nathanm]

I would like to know which Wal-Marts pay part-time associates $8.80 an hour. I wouldn't mind making a few extra bucks on the side.

Replying to myself, I know. I suspect this figure is much like the average hourly wage in the US being $23.24. True, but misleading.

[heironymouspasparagus]

WalMart has a bad reputation regarding their employees.  I would like to know how many part time jobs are at WalMart that would not exist as full time jobs. Some jobs to replace no jobs.  I personally know a few (If I were Heiron, I would use literary exaggeration to make a point and say hundreds of people.) people who have worked part time at WalMart to supplement their regular job.  Reputation says WalMart is the worst but how does WalMart actually compare to Target, K-Mart, and others?   Are you saying WalMart needs to fail to fix America's economy?

As in most cases, no need to exaggerate at all.  Two nephews, one niece, and two very close friends have worked there for varying times.  The nephews/niece still there.  Treated fair, and given their education levels, doing ok.  Coming up on 5 years, so we will see.

The two friends were both treated like crap.  One in particular was kept for 4 years, 11 months and about 3 weeks.  Other one only made it 4 years and about 6 months.  Must be something about a 5 year clock for WalMart.  Will keep you posted if the others make it past the 5 years.

[Red Arrow]

Must be something about a 5 year clock for WalMart. 

Benefits change?  Many places add a week of vacation at 5 years.