What About the Documentary Expose’ that is Being
Shown on Campus on 11/17?
Consider WHO and WHY the Outcry:
1. “Wake Up Wal-Mart" is a project of the United Food and Commercial
Workers International Union.
2. "Wal-Mart Watch" received start-up cash from the Service Employees
International Union.
• These are not manufacturing unions, but nonetheless criticize WalMart for exporting factory jobs
• Groceries pay wages and benefits 50% better than other retail
sector jobs – because they have been union dominated. Recall
the Hicks-Marshall laws – unions will be more effective organizing
in sectors where sector product demand elasticities are low (i.e.
consumers “need” food, so will pay regardless of the price)
• Grocery workers are not losing jobs to China, but are being
outcompeted by other American workers.
3. These same unions and their supporters are even trying to stop
(socially conscious) Whole Foods from entering Eugene, OR despite its
reputation for creating new jobs in domestic “organic foods” sector.
What About the Documentary Expose’ that is Being
Shown on Campus on 11/17?
But there were some bad stories in the video:
1. I have no doubt that some people have been discriminated against. It is harder to
believe that a corporation that employs 775,000 women and 208,000 African
Americans and 139,000 Hispanics systematically discriminates against them. WalMart’s customers are equally diverse.
•
Consider: Wouldn’t a greedy competitor make enormous profits by hiring those
that have been systematically discriminated against and paying them what
they are worth and promoting them to the appropriate levels?
•
Consider: If true, it would be reprehensible – no argument here. This is why we
have labor laws and a court system. However, Is this expose’ truly unique to
Wal-Mart? Some believe that it happens here at Centre.
2. But working conditions are abysmal - claims are that Wal-Mart has abysmal labor
standards, including its poor compensation, difficult working conditions, and
effective strategy to remain union free.
•
Consider: you can go to Wal-Mart and see for yourself. This is not the Gulag.
•
Consider: If working conditions are at the sweatshop level, and if mobility in the
U.S. is as high as ever, why do people remain working there?
3. The movie ends with a “victory” showing an empty warehouse store. I’m sure it is
moving to the anti-Wal-Mart supporters. Is this really progress? How is this helping the
community? What is the alternative?
Wal-Mart is a Giant and is Taking Over (Just Look at
the Movie Advertisements) – Part 1
1. Wal-Mart employs almost 1.3 million workers, while large, it is still about
1% (1 in 100) of all American workers. They do not have control of the
labor market – they are competing with hundreds and thousands of
other employers.
2. If you believe Wal-Mart’s size is bad because it has undue political
influence, shouldn’t one raise the question about the size of the
government? Ask yourself which is a bigger giant, your government –
which you have little choice among, or Wal-Mart – a retail center that
you can choose to patronize and work for or not?
3. Companies grow when consumers value the products and services
and when employees wish to work there. Traditional supermarkets
and retailers must not be satisfying one or both. Nonetheless, WalMart’s competition will force traditional retailers to develop better
services and provide more value to their customers.
Wal-Mart is a Giant and is Taking Over (Just Look at
the Movie Advertisements) – Part 2
1. Wal-Mart's stock price has been static for four years – if a company
were poised to take over the world and reap enormous profits from
doing so, this would not happen. This is as sure a sign that Wal-Mart
too faces stiff competition and this competition will continue to limit its
opportunities.
2. As Russ Roberts has said, this is the “Land of the Boobies” theory of
Wal-Mart. Just as Pinocchio is enticed to leave school with goodies
and treats and is ultimately transformed into a donkey and enslaved –
so too do people naively want to work for Wal-Mart when they set up
shop. Then soon the whole town is destroyed with no businesses – no
other places to shop or work. Then, evil Wal-Mart jacks up prices and
clamps down on wages because people have no alternatives.
• Consider: What about Wal-Mart’s slogan?
• Consider: Somehow people just STAY there when things get this
bad? In 2005, mobility is much higher than ever.
• Consider: This is ultimately an empirical question, though I have
yet to see a town turn into this mythic imprisoned ghost town.
Aren’t Wal-Mart’s Wages Too Low?
1. They are too low for me, so I don’t work there.
2. I bet they are too low for you, so that’s why you probably do not work there.
3. Why do these low wages make people that do not work there angrier than those
that do?
4. Consider: If Wal-Mart’s wages, benefits and working conditions HURT workers, why
do people choose to work there? It HAS to be the case that Wal-Mart’s packages
are better than the alternatives available to these workers. So, Wal-mart MUST make
employees better off than whatever opportunities they would confront without WalMart. Wal-Mart creates opportunity for less-skilled workers that would have fewer
opportunities otherwise.
5. Wal-Mart is vilified for entering low-income rural areas. It creates better jobs and
increases the availability (and lower prices) of goods and services. Would lowerincome areas be better served if expensive “organic” groceries opened up, Tiffany’s
set up shop, etc.?
6. Well, no one can live on only $9.68 per hour. That’s $19, 360 per year. Clearly the
people working there CAN live on this.
7. Is it Wal-Mart’s fault that many workers are only able to work jobs that pay this little?
Is Wal-Mart responsible for the choices that individuals made earlier in life and are
making today? Is Wal-Mart responsible for the poor quality of schooling its workers
attended? Is Wal-Mart responsible for the poor parenting some of its workers
received? Or the bad luck they might have incurred in life?
Wal-Mart’s Wages are So Low Because it Free Rides
on Government Welfare and Health Programs
1. Fundamentally an empirical question that has started to be answered – see
attached slides
2. The anti-Wal-Mart movie sites list a dizzying array of facts about how Wal-Mart
employees make use of public assistance.
•
Consider: Why are they not listing similar facts for other low-wage
employers?
•
Consider: If there is an opportunity to take advantage of these programs,
would you expect any employer not to do it? Is this an indictment of WalMart or of the design of the programs?
3. Here is what HAS to be true in order for the presence of Government benefits to
allow Wal-Mart to pay low wages and benefits:
•
It must be the case that the presence of government welfare programs
increases the supply of workers (for any current level of the wages, the
existence of welfare makes MORE people want to work at that wage, so
firms can lower wage offers and also hire more workers)
Wal-Mart’s Wages are So Low Because it Free Rides
on Government Welfare and Health Programs
•
Why is this necessary – accusations such as these are akin to saying that
welfare creates Wal-Mart's supply of labor (is there some contradiction now
between being anti-Walmart and pro-welfare state?) Their thought goes,
“without welfare, wages at Wal-Mart are too low, so no one would work there
for fear of starving – I’d rather starve without working.” The presence of welfare
enables workers to stay alive and hence enables them to accept horrible WalMart jobs.
•
So, absent welfare, the amount of money workers “need” would increase and
they’d then force Wal-Mart to pay more. In order for Wal-mart to be paying its
workers more, two conditions must be true:
1. These workers must be productive enough so that they are worth that
much to Wal-Mart – otherwise Greedy Wal-Mart couldn’t pay them this
much. (e.g. they must generate $10.00 per hour in revenues in order to be
paid a wage of $10 per hour).
2. Other businesses MUST be in competition for these workers – otherwise,
Wal-Mart could lower wages with no fear of workers leaving. The fact that
Wal-mart’s workforce is not unionized supports this claim.
Wal-Mart’s Wages are So Low Because it Free Rides
on Government Welfare and Health Programs
•
What about welfare then reduces the ability of workers to earn high wages?
1. It must make them less productive (e.g. once on Welfare, you are only able to
produce $6 worth of services per hour). Then wages will fall, but there is no net
benefit to Wal-Mart.
2. Welfare must reduce the competition from other companies for these workers.
Well, I can’t think of why this would be true – and if the story that companies
“free-ride” off of government welfare payments is true – then MORE companies
should be competing for workers when welfare exists.
3. If (a) or (b) do not hold, as is likely true – then it must be the case the workers on
welfare DO NOT WANT to earn as much as possible. “Kroger offers me $9.00
per hour, and Wal-Mart only $8.00 per hour, since I am getting government
benefits then I do not “need” the higher Kroger wage, I’ll let Wal-Mart continue
to pay me the lower wage.”
(4) ALL of the empirical evidence in labor economics (practiced by economists of all
political stripes) must be wrong. Empirical research shows unanimously that
government welfare programs reduce the supply of labor, raising reservation wages
– and therefore must raise the wage that Wal-Mart pays to attract the workforce it
desires.
Local Governments Give Wal-Mart Tax Breaks to
Come In
1. This is something we should penalize Wal-mart for?
2. The breaks are typically available for all stores with the potential to
improve local economies – what other rationale is there?
3. Aren’t local citizens in control of local government?
• Shouldn’t we be questioning what these officials are doing if we
find this offensive?
• The movie shows a grocery store owner that didn’t get the same
breaks as Wal-Mart. I certainly sympathize with the owner. If it
were me I would be extremely angry. However this is a political
failure not a Wal-Mart failure.
• As earlier, doesn’t this type of failure lead us to question how
much money and power rests in the political arena and outside
the individual arena?
We Don’t Want to Eliminate Wal-Mart, We Just Want
Them to Pay More. Can’t Wal-Mart Pay More?
1.
For starters, Wal-Mart does not pay many of its workers minimum wage. It’s average wage for full-time
hourly workers is $9.68 per hour (the minimum wage is $5.15).
2.
So, firms that pay higher wages are moral and nice while firms that pay lower wages are immoral and not
nice? Ask any of your professors whether they would be paid more at Amherst or Centre (and why)? I
doubt that they’ll attribute the answer to Amherst’s keener sense of social justice or kindness.
3.
Won’t higher wages decrease employee turnover, reduce H&T costs and increase profits? Perhaps, but
would you want the government mandating this, or Wal-Mart executives to figure it out. If higher wages
increase profits, why have they not yet tried this?
4.
Wal-Mart doesn’t pay more or offer health insurance to everyone because it can attract the size and
quality of workforce it wants at current compensation levels. For other companies, they have to offer
health benefits to attract workers. The reason they offer health insurance isn't because they're socially
responsible or kind or altruistic. They find that to compete for workers they have to offer it.
5.
Ask yourself, are there really a bunch of greedy fat cats sitting in a board room plotting to keep worker
wages low? Yes, employers want to keep labor costs as low as possible. However, Wal-Mart does not in
any real sense set wages. Again, ask your professors, how much could you sell your house for? I know
that houses similar to mine in size and location sell for about $1. I’m free to set any price I want on my
house, say $2, but if I do, I will wait a long time for a purchaser to come along.
6.
Doesn’t Costco and Sam’s Club pay higher wages? Yes they do. This is because the level of skills and/or
knowledge and/or customer service they choose to offer is higher than at other places. Not because the
CEO of Costco is a nicer guy than the CEO of Wal-Mart.
7.
Efforts to increase wages or benefits will punish the people you are trying to help. Demand curves slope
downward – and while you will see those that remain employed making more money, what you will not
see are the lower wages elsewhere in the economy, or the workers that are unable to find a job.
8.
Of course, Wal-Mart still COULD pay more, a little bit, but so too could Centre. The voluntary transactions
between Wal-Mart and its workers generate surpluses for both. Too much surplus to workers will lead to
more workers competing for these jobs. Too much to Wal-Mart and new firms would compete Wal-Mart
off the map.
Wal-Mart and Other Greedy Corporations Obsessed with Profits , “Threaten all
American Ideals that are at odds with profits – justice, equality and fairness.”
1.
I am sorry of this is something you truly believe.
2.
Is it true that behavior is either altruistic or greedy? Either you are motivated by profit or the
opportunity to help others.
3.
Consider:
•
Why might a vet clinic offer free immunizations to new customers once per year?
•
Did the Bayer Company in Germany create aspirin because it loved people?
•
Would Bill Gates be doing more good for the world had Microsoft not generated
gargantuan amounts of profits? … this list is infinitely long …
4.
How are we better served by a world without these greedy profit-obsessed corporations? What is
the alternative model? Wages will be higher somewhere else? They are not there now.
5.
Consider:
•
Would citizens in the wake of a natural disaster be better served by greedy-profit seeking
companies or by agencies that do not face the rewards carrot of profits and the penalty
stick of losses?
•
Would citizens be better able to afford social insurance programs, public schools, public
highways, environmental improvements, etc. when individuals and corporations make large
profits or when we are collectively less wealthy?
•
Wal-Mart is criticized for expanding outsourcing activities. Are socially compassionate
people ignorant of the fact that anti-globalization movements are the same as saying, “US
workers are more important than foreign workers”. You may want to believe that, but
doesn’t that go against the idea of social justice and equality?
Wal-Mart Exports Jobs Overseas
1. For the sake of consistency, if you believe that it is bad for people to save time
and money by outsourcing goods and service production overseas, for
example, by having people in India prepare their income taxes, then you
should very seriously oppose people saving time and money by using software
to do their taxes.
2. The inconsistency demonstrates a lack of appreciation for what Joseph
Schumpeter called the process of “creative destruction.” We should applaud
Wal-Mart if it is able to deliver goods and services more cost effectively than its
competitors – that is the essence of doing business and it has been going on for
centuries. Should we demonize IBM and Microsoft for making word processing
possible on our desktops? After all, think of all the typewriter repair men, factory
workers, retailers and wholesalers that have been put out of business because
of it? As with technical improvements, the benefits of outsourcing are
widespread and large (we all enjoy lower prices and a larger array of goods),
while the losses are acute and smaller (some people do in fact lose their jobs).
It has long been a mystery why people view creative destruction coming from
technology to be ok, but not from other activities.
3. Ask yourself, is the alternative better? Protectionism serves to enrich
entrenched interest groups. We're supposed to be against that. Protectionism is
state sanctioned thievery of the consumer, and both the poor and rich alike
are fleeced.
What Good Does Wal-Mart Do?
1. Again, let’s focus on the economics – you can look at Wal-Mart’s websites to
see specific examples of good things they do.
2. By finding a way to lower the prices that consumers face, they free up
consumer resources to spend on other items and services, or to save, which
expands businesses and investments and creates employment in other areas.
For example, I save approximately $120 per month by shopping for groceries at
Wal-Mart instead of Kroger. I use half of that money to save for my daughter’s
arrival and I use the other half on pet-care procedures for my many animals
(e.g. dental work and better food).
3. Retailing is all workers, not much place for technology or machinery – but WalMart found a way to use computers to reduce inventory costs and smooth the
supply chain process – to a tremendous improvement in the U.S. wealth – stuff
gets from factories to our homes much more cheaply and quickly today than
in past. So while Wal-Mart cannot manufacture clothing more cheaply, it’s AS
IF they’ve found a cheaper way to make clothing.
4. Wal-Mart is vilified for the demand it places on its suppliers. However, these
demands encourage businesses to supply things more cheaply and it makes
them work harder and continue to innovate – this is exciting and a good thing
for all of us. Think of how well some other institutions are run absent these sorts
of competitive pressures.