Critcizing Wal-Mart’s Critics Posted by: Dale Franks
on Monday, November 28, 2005
Sebastian Mallabytakes a closer look at Wal-Mart's business, and opines that the opposition to the retailer is a bit silly.
Wal-Mart's critics allege that the retailer is bad for poor Americans. This claim is backward: As Jason Furman of New York University puts it, Wal-Mart is "a progressive success story." Furman advised John "Benedict Arnold" Kerry in the 2004 campaign and has never received any payment from Wal-Mart; he is no corporate apologist. But he points out that Wal-Mart's discounting on food alone boosts the welfare of American shoppers by at least $50 billion a year. The savings are possibly five times that much if you count all of Wal-Mart's products.
These gains are especially important to poor and moderate-income families. The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco. Moreover, Wal-Mart's "every day low prices" make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart's $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion.
Set against these savings for consumers, Wal-Mart's alleged suppression of wages appears trivial. Arindrajit Dube of the University of California at Berkeley, a leading Wal-Mart critic, has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector. This number is disputed: Wal-Mart's pay and benefits can be made to look good or bad depending on which other firms you compare them to. When Wal-Mart opened a store in Glendale, Ariz., last year, it received 8,000 applications for 525 jobs, suggesting that not everyone believes the pay and benefits are unattractive.
But let's say we accept Dube's calculation that retail workers take home $4.7 billion less per year because Wal-Mart has busted unions and generally been ruthless. That loss to workers would still be dwarfed by the $50 billion-plus that Wal-Mart consumers save on food, never mind the much larger sums that they save altogether. Indeed, Furman points out that the wage suppression is so small that even its "victims" may be better off. Retail workers may take home less pay, but their purchasing power probably still grows thanks to Wal-Mart's low prices.
Interestingly, he also goes on to point out a bit of hypocrisy in some of the criticisms.
Wal-Mart's critics also paint the company as a parasite on taxpayers, because 5 percent of its workers are on Medicaid. Actually that's a typical level for large retail firms, and the national average for all firms is 4 percent. Moreover, it's ironic that Wal-Mart's enemies, who are mainly progressives, should even raise this issue. In the 1990s progressives argued loudly for the reform that allowed poor Americans to keep Medicaid benefits even if they had a job. Now that this policy is helping workers at Wal-Mart, progressives shouldn't blame the company. Besides, many progressives favor a national health system. In other words, they attack Wal-Mart for having 5 percent of its workers receive health care courtesy of taxpayers when the policy that they support would increase that share to 100 percent.
The real problem with Wal-Mart is really the same problem that Free Trade has: The disadvantages are specific, and easy to see, while the advantages are diffused, and less obvious. It's easy to see the 5% of Wal-Mart workers who are using Medicaid benefits, or the number that don't have regular benefits at all because they aren't full-time workers. What isn't as easy to see are the millions of poor Americans whose budgets can be stretched further, and who can afford more food or clothing, because of Wal-Mart's price structure.
But let’s say we accept Dube’s calculation that retail workers take home $4.7 billion less per year because Wal-Mart has busted unions and generally been ruthless. That loss to workers would still be dwarfed by the $50 billion-plus that Wal-Mart consumers save on food, never mind the much larger sums that they save altogether.
Not to mention that 8 years ago when my wife worked there, they got I think a 10% discount on any goods purchased at walmart. That’s a pretty good—and never mentioned—benefit.
Not sure if it’s still in effect, but I believe it is.
I work at Wal-Mart part time and the 10% discount is still in effect. This article doesn’t mention the profit sharing nor the stock purchase program either. The profit sharing is for full-time employees only but the stock purchase program can be used for anyone and they match 15 cents on every $ up to $1500 per year.
"What isn’t as easy to see are the millions of poor Americans whose budgets can be stretched further, and who can afford more food or clothing, because of Wal-Mart’s price structure."
Perhaps you’re just trying to be diplomatic, but I say horseshit. It is easy to see, if one doesn’t have one’s head up one’s butt. Wal-Mart’s enemies either choose to ignore it or are too stupid to see it. The typical lefty who hates WM is not exactly renown for his thinking prowess either.
Poor journalism on his part. Comparing a huge benefit with a seemingly smaller cost. It doesn’t show how those people are effected on a per capita basis.
The economic cost of working at wal-mart is far greater than the economic benefit of shopping at wal-mart, on a per-capita basis. Even in consideration of the fact that the $50x10^9 might benefit those same people losing 4.7x10^9, the benefit is crowded out creating a seriously dissproportionate benefit - that’s the point he left out - and that’s how the poor stay poor.
I suggest you read the article, again - I think you missed a few things. My comment merely reasserts what the article has already said, while, bringing light to an incongruent comparison of an economic benefit to a significantly larger group ( dilution ) and an economic cost to a significantly smaller group.
"But let’s say we accept Dube’s calculation that retail workers take home $4.7 billion less per year because Wal-Mart has busted unions and generally been ruthless. That loss to workers would still be dwarfed by the $50 billion-plus that Wal-Mart consumers save on food, never mind the much larger sums that they save altogether."
You want to see math? Fine:
Group A Benefit = Entire Pop. of USA Walmart Shoppers / 50 Billion Economic Benefit ( From Article Above )
Group B Loss = Entire Pop. of Person’s Employed at Walmart / 4.7 Billion Economic Loss ( From Article Above )
Groub B’s loss is substantially greater than Group A’s benefit.
Essentially you’re trying to argue that the larger population benefits at the expense of the smaller; however, you’re analysis is guesswork at best.
First, your numerators and denominators are upside down. The dollars should be on the top (Benefit or Loss per person).
Second, the article states that:
"Dube...has calculated that the firm has caused a $4.7 billion annual loss of wages for workers in the retail sector."
Note it says retail sector, not Wal Mart only. If Dube means all retail workers, and I think he does, the Group B person count is much larger and brings the two numbers much closer together. It also means that the alleged loss of each WM employee is a much smaller percentage of the 4.7 billion. Of course we can’t really analyze this unless we know these actual numbers so I’ll leave it at that.
We don’t know how much of the 50 billion in savings accrues to the people who take home 4.7 billion less. I’m willing to bet, however, that’s it’s a significant amount. Of course according to the article the savings may be 5 times that, further dwarfing the alleged loss.
Next, opportunity costs should be considered.
We don’t know how many of the employees in the retail sector would not be employees if Wal Mart was forced to pay more in wages and benefits. We don’t know how many retail employees would not be employees at all, or would be paid even less, if Wal Mart did not exist. Let’s not fail to consider that making X% less than some hypothetical non-WM influenced wage rate is still better than making nothing at all. Let’s also not forget that someone employed at the allegedly low, low wage rates of WM is far less likely to be a cost to taxpayers thru welfare programs and far more likely to become more employable at a wider range of jobs and companies over time vs. someone who is unemployed. (See this for more on this specific topic.)
Next to last, the aggregate cost benefit analysis is pointless because it only factors in a single specific cost and benefit - wages lost and consumption dollars saved. Unconsidered are the other compensation benefits, benefits of employment (vs. none), and how many of these retail workers are not the primary breadwinners for their households (many are not).
Finally, typically lost in all the hoo-hah on Wal Mart is that people take these jobs, at the wages offered, voluntarily. That, frankly, should end any debate right there.
Granted, I made a mistake in the mathematics (With my girlfriend standing over my shoulder saying "Can we go now... Can we go now... Can we go now", heh). And you’re correct, the comparison that has been drawn isn’t the whole picture. Which, is exactly what my comment was about in the first place, poor journalism.
Let’s compare. "Finally, typically lost in all the hoo-hah on Wal Mart is that people take these jobs, at the wages offered, voluntarily. That, frankly, should end any debate right there."
"Unconsidered are the other compensation benefits, benefits of employment (vs. none), and how many of these retail workers are not the primary breadwinners for their households (many are not)."
Agreed, they take these jobs at the wages offered because they HAVE to. You can’t tell me they want to be paid below the poverty level. Compensation benefits, benefits of employment? Isn’t that the largest part of the complaint against WM - that they lack a secure benefit system for over half a million of their employees? Of course they all aren’t primary breadwinners, but the pot looks empty for those that are.
In any case, I’m an idealist, I don’t think it’s right for one group benefit to come at another groups significant cost.
They HAVE to? Is someone forcing them to take these jobs?
I’m sure they would rather be paid more - who wouldn’t? But if the choice is between a job at WM and one that pays less, or no job at all, which is the better choice?
You seem to be implying that WM should voluntarily pay more for its staff than the market is willing to accept. So imagine yourself as the owner of a business trying to make a profit. And let’s say your profit (net) goals are reasonably low - 4%. If you have capable, dedicated people willing to work in your business for $8/hr - a number that helps you hit your target, are you going to pay them more? If not, aren’t you benefiting at their cost?
By the way, WM’s last annual net profit was 3.6%. That’s not particularly high compared to other industries, but higher profit is hard to come by in retail.
I’m not going to go into the details of their benefit system but you should ask yourself what are the negatives of a system where employers are considered obligated (outside of simply remaining competitive) to provide all sorts of benefits to employees. I’m guessing you are too young to have any of this on your radar, but one of the significant problems of health insurance is that is is almost completely provided via employers.
I guess my construct of an employment system is a little different from yours. Considering, in Canada, Employers don’t bear the brunt of health benefits but the Government does (through taxation mind you).
But, regardless of the differences, the pay is still crap. Profit of 3.6% is 2.4 billion. I’m sure they could spread the wealth around a little bit more.
Oh, and good article that you linked to btw. ( Dead End Jobs ) Adds a different perspective to it when you look at it over the long run.
After reading this thread back and forth and then seeing Brandon’s admission that he’s from Canada gives me great insight into his discussion elements. I suggest a study of the effect of health care benefits on employers is in order! Things would be far worse for Walmart employees if they ALL received government assistance! There would be a significant drop in productivity as inefficiency is commonplace in govt provided healthcare.
Finally, your comment about profit of 3.6% being $2.4 billion also needs to be spread across all Walmart employees...if I do the math right that is about $1600 year. That hardly qualifie as "spreading the wealth" and erases the companies ability to compensate for double digit rising health care costs.
Bottom line is that Walmart is undeserved of criticism.