July 19, 2005

Wal-Mart: Pros and Cons

What are the campaign issues of the future? Clay Risen thinks that Wal-Mart will be the mammoth in the mudhut come '06 and '08. Democratic operatives have been heard sharpening their spears even now. So Wal-Mart. I guess it'd be a good idea for me to have a grand opinion on the subject, and even better if that opinion was the correct one. Well I can't do that all in one post, but here's an attempt to list out, as fully as I can, both the pros and cons of Wal-Mart's existence. Feel free to list additional points or corrections, and I will add to and revise the list as needed.

  1. The low prices increase wages for other people. (Wal-Mart's entry in an area can drive down grocery prices 15 percent.) For low-income families, groceries are a somewhat big percentage of the budget. [Update: See Ezra Klein's important dissent here; it seems Wal-Mart's "low prices" can be deceptive.]
  2. The activity that Wal-Mart generates can benefit other nearby local shops. (Although this obviously isn't true if Wal-Mart is in an isolated rural-ish area, away from other shops, as is very often the case)
  3. In urban areas, the competition can help produce variety among local shops, forcing them to specialize and benefiting consumers.
  4. Is the pay particularly horrible? The average wage for Wal-Mart is $10.77. The national average for the service industry, according to a 2002 BLS Survey, is $9.77. Unions haven't made much inroad into retail generally. Starting pay at Wal-Mart for inexperienced workers is $7-8. This is well below living wage levels in many areas and pretty unacceptable, in my opinion. But perhaps it's less a problem with Wal-Mart per se and more a problem with the nature of pay and labor density in the entire industry. (Which means, true, that remedies will have to start with Wal-Mart.) It's also not clear that the "Mom 'n' Pop" stores being put out of business are paying much better than Wal-Mart.
  5. Wal-Mart is just a temporary job for many. 44 percent of Wal-Mart's 1.4 million employees left for other jobs in 2003. Of course, if Wal-Mart uproots other businesses in the area, there may not be other jobs to go to.
  6. Wal-Mart pays its managers 30 to 40 percent less than its competitors, a practice which could in theory help flatten inequality in the retail sector. (Maybe not, this is very unclear.) Meanwhile, Wal-Mart has a far lower percentage of college graduates among its managers than most companies, which, a bit, reduces the income gap between education levels.
  7. As someone somewhere said, Wal-Mart probably did more than the Fed during the 1990s to hold down inflation. But I'm not sure how this works. If someone wants to make the case that Wal-Mart helped the Fed keep interest rates low, which therefore helped push unemployment down to 4 percent and hence push wages up, I'd be curious to see it.
  8. Wal-Mart can, in theory, be a positive influence abroad—introducing more modern business practices, eliminating corruption, etc. There's some evidence that it has had this effect in China. (The flip side: it puts such pressure on its subcontractors and suppliers to keep costs down that the latter end up pursuing all sorts of labor violations in order to keep their Wal-Mart contract. Wal-Mart officials claim that they try to crack down on this, but see this post for skepticism on that front.)
Cons: (Here we go!)
  1. Serious, serious labor abuses. (Off-the-clock work, lock-ins, running employees ragged.) This isn't just an accident. It's part and parcel of the whole system. Wal-Mart world headquarters expects labor costs to be cut by two-tenths of a percentage point each year. The only way to get there is to push people to work harder and cut corners.
  2. Gender discrimination. One would hope this would be fixable—since basic gender discrimination is always inefficient—but then there's also pregnancy discrimination and discrimination against mothers, both of which are likely to be quite bad at Wal-Mart. (I don't see the store offering its clerks paid maternal leave, for instance.)
  3. Yes, Wal-Mart's wages are particularly horrible. (See #4 above.) The average supermarket clerk makes $10.35 an hour. Sales clerks at Wal-mart make $8.23 a year, which translates into $13,861 a year.
  4. Union-busting. Enough said. And Wal-Mart has an effect on union busting elsewhere. In 2004, unions had to make major wage and health concessions to supermarkets in California because of the threat of competition from Wal-Mart.
  5. Wal-Mart was responsible for a bafflingly large part of the productivity boom of the 1990s. But most of the gains went to shareholders rather than workers. In fact, most of the "productivity gains" reaped by Wal-Mart probably shouldn't be counted as such. See Daniel Davies on this point.
  6. A study by the San Diego Taxpayers Association found that Wal-Mart depresses wages for similar workers in the sector; in 2003 this was estimated to be between $105 million and $221 million. (But is this offset by the rise in purchasing power? And is this true in rural areas?)
  7. Only 41 percent of Wal-Mart's workers are insured. The employee burden for health care is, on average, 42 percent, as compared to 16 percent nationally. In theory, this should force Wal-Mart's competitors to follow suit. (But, how many of these workers are already covered by their spouses or parents?)
  8. Studies have shown that, for instance, one 200-person store can cost taxpayers $420,750 a year, due to all of the welfare programs that the Wal-Mart workers would qualify for. (Free lunches, section 8 housing, federal tax credits and deductions, Title I expenses, S-ChiP, energy assistance.) But this figure is misleading—how much would all of these workers be making if Wal-Mart doesn't exist. Presumably the welfare costs would still exist.
  9. Wal-Mart can swamp other local businesses. Economist Kenneth Stone has found that, in small towns, retail sales collapsed a few years after Wal-Mart enters. And it's not just other retail businesses that are hurt: because Wal-Mart imports goods in bulk, it can make it hard for local or new manufacturers to break into the business.
  10. Is Wal-Mart good or bad for upwards mobility? My guess is bad. In theory, both CostCo and Wal-Mart fill their management ranks from people who started out on the floor. But Wal-Mart's turnover is so breathtakingly high—some 70 percent—that a given worker has an infinitely smaller chance at rising up the Wal-Mart corporate ladder. But see #6 above—Wal-Mart does offer a better chance at promotion for those who didn't go to college.
  11. Labor abuses in China. See #8 above.
That's all I can think of right now. Another thing to consider: how do different policy environments benefit or hamper Wal-Mart? In the 1990s Wal-Mart really took off. That was also a time when the federal minimum wage continued to decline in real terms, despite a minor boost in 1995, and the Earned-Income Tax Credit was expanded. Did that help Wal-Mart? (My thinking here is that, in theory, a higher minimum wage forces companies to pay low-wage workers more than they otherwise would, and the EITC allows them to pay those workers less than they otherwise would, although the actual impact of each seems difficult to calculate.)

Meanwhile, one of the arguments for boosting the minimum wage and/or labor density in the retail sector is that it would make it more difficult for Wal-Mart to keep improving its bottom line by slashing labor costs. In that case—and this is theoretical—the store might have to aim for productivity increases by other means, either by investing in its workers like CostCo does or what have you. Then again, as I said, the Wal-Mart model thrived in the late '90s, when full employment was putting upward pressure on wages for the first time in a long, long while. Why was that so? One possible answer: the increase in wages at the low-end of the payscale was hurting Wal-Mart's retail competitors, who often pay their workers even less, more than it did Wal-Mart. Or maybe low oil prices did it. Hmm...
-- Brad Plumer 11:24 AM || ||