Thursday, March 29, 2007

Does Wal-Mart Lower Wages For ALL Workers?

"Wal-Mart's lack of respect for their employees drives down standards for all retail workers."

- Stuart Appelbaum, President of Retail, Wholesale and Department Store Union

The most charitable interpretation of the above quote is that when Wal-Mart lowers wages, then its competitors will go out of business unless they too lower wages. However, this is fallacious for several reasons:

1) Wal-Mart has as much control over wages as you have over the value of your home. Wages are set by market conditions: The size of the labor pool, the skills and productivity of labor, the competition for labor, the alternatives for labor, and so on, all affect wages -- not what any employer feels like paying. In fact, all retailers would like their labor costs to be zero, but they cannot make that happen. So, they must pay the market price for labor.

2) All else being equal, a new Wal-Mart would increase employee wages. If the size of a labor pool is fixed, a new Wal-Mart would increase the demand for workers, and wages will be bid up.

3) Wal-Mart makes workers better-off; otherwise, why would they apply for a job at Wal-Mart? Why would 25,000 people apply for 325 positions at a new Wal-Mart near Chicago?

4) If a new hotel chain opened with very poor quality rooms, would that "drive down standards" for all hotels? Or would that hotel chain go out of business? When a restaurant is found to have rats running through the dining area, do other restaurants respond by planting rats in their dining rooms?


Lexcen said...

Maybe Wal-Mart is employing illegal immigrant Mexicans.

Brevoort said...

Could be, who knows? But then (cultural issues aside), it still isn't making anyone worse off, except for other people who might have had those jobs instead of the Mexicans.

But then, you could substitute "immigrant Mexicans" with "ATMs" or "automatic elevators" and come to the same conclusion.

JohnM said...

Your examples in 4 are a little weak.

You shouldn't compare the output of a business with its input until you've explicitly explained the link. Rats in a resturant or poor quality hotel rooms are the output. Staff are the input. A change in the quality of the output will (all factors being constant) lead to a change in demand. It's not immediately obvious why a change in salary (assuming price stability) should lead to a change in demand.

a. I'm not claiming that a raise in input costs won't lead to a price rises but most socialists start from the proposition that profit is wicked and therefore assume that price rises can be avoided by taking increased pay costs from the profit. You need to address this argument for completeness sake.
b. In addition you omit a subsidiary effect of mininum wage laws - automation of low skill jobs. If we automate we avoid such legislation and often gain increased managerial control of similar laws such as rules preventing lay-offs. An organisation that has made these changes would appear to have increased it's average pay, masking the fact that the low paid have merely been laid off. I would submit that this is precisely the method used in Europe to deal with such "labour protection" laws.
c. Another special case is the Fair Trade movement - the purchaser pays more for the same goods precisely because they know the grower has been paid more (and the feel-good-factor).

There is another negating argument I've heard and I'd value your opinion. This relies upon the assumption of social norms. The free market for labour is distorted by social norms in various ways:
a. Gender favoured activities - eg. Nursing.
b. Societal value placed upon various jobs. eg. Doctors are better paid in the US than the UK and better in the UK than in France, absolutely and relatively.

Historically there are examples of women being paid less for the exact same work as men. eg. Ford in the UK went on strike to achieve pay parity in the 1970s. The explanation would be that because women were assumed to be temporary workers (ie they would leave when they married) they could be paid less. This being society's general norm it is then easy to see why nurses, a relatively skilled group, are paid less than an equivalently skilled group of men. More recently, we can see how France, which has a highly regarded health service, pays its doctors much less than can be obtained in the US.

By extension, Walmart is oversubscribed by applicants because social norms in the US are such that the applicants do not realise that they are worth more. Under different social norms, Walmart wouldn't think of paying their workers so little nor would applicants bother to apply.

You'll need to be a little generous with the above argument because it's not one I would subscribe to (too reliant on "false conscious") and you should assume that I have not done it justice.

Brevoort said...


On social norms, I would contend that the free market is not distorted by them, but instead reflects them. For example, a nudist might say that the social norm of wearing clothing distorts the free market for clothing, but I would reply that the price for clothing merely reflects the social norms of wearing clothing.

And in any case, even if labor is somehow ignorant of what they are "really" worth, that would not explain why Wal-Mart competitors don't bid the wages up in order to hire these undervalued employees.

Also, wages, to the worker, are output. They put their labor in, and they take their money out. So, I believe the analogy still holds. Just pretend that instead of getting lower wages, they are now getting cash with rat excreta smeared on it. It's unlikely that this will induce Target to do the same.