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Can Wal-Mart Pay More?

Posted By Russ Roberts On May 4, 2005 @ 10:19 am In Archaeological Economics,Media,Work | Comments Disabled

The New York Times (rr) reports [1] (ht: Drudge) that Wal-Mart is under fire for paying too little.  The headline of the story:

Can’t Wal-Mart, a Retail Behemoth, Pay More?

Love that rhetorical question with the easy answer.  Of course it can!  I hesitate to use the word “report” in the opening sentence of this post.  There’s no real news story here.  It’s not like someone discovered that Wal-Mart is using slave labor or not paying the minimum wage.  That would be a news story.  What we have instead is what I’d call a fake news story [2], generated by a press release from activists that plays to the sensibilities of a newspapers editors, reporters and readers.  Let’s read on:

With most of  Wal-Mart’s [3]
workers earning less than $19,000 a year, a number of community groups
and lawmakers have recently teamed up with labor unions in mounting an
intensive campaign aimed at prodding Wal-Mart into paying its 1.3
million employees higher wages.

A new group of Wal-Mart critics ran a full-page advertisement on
April 20 contending that the company’s low pay had forced tens of
thousands of its workers to resort to food stamps and Medicaid, costing
taxpayers billions of dollars. On April 26, as part of a campaign
called “Love Mom, Not Wal-Mart,” five members of Congress joined
women’s advocates and labor leaders to assail the company for not
paying its female employees more.

So do you see the “news” that generates the article?  A group of activists have taken out an ad and started a campaign criticizing Wal-Mart.  Those activists have sent a torrent of press releases to places like the New York Times, hoping to get some free publicity for their cause.   It’s working.

Among workers at Wal-Mart’s 3,700 stores across the United States, the debate is also heating up.

Not really.  That’s a meaningless sentence designed to lull the reader into thinking something is happening that merits New York Times coverage.  The reporter, Steven Greenhouse, has no idea if the debate is heating up, cooling down or not happening at all.  It’s a ridiculous claim.  The data that supports it comes from the reporter finding two workers, one fairly satisfied, one fairly dissatisfied, and interviewing them.  Not even an argument in the parking lot that’s overheard, but a made-up debate to keep the article going.

The rest of the article is a surreal discussion of whether Wal-Mart can afford to pay higher wages or not.

If Wal-Mart spent $3.50 an hour more for wages and benefits of its
full-time employees, that would cost the company about $6.5 billion a
year. At less than 3 percent of its sales in the United States, critics
say, Wal-Mart could absorb these costs by slightly raising its prices
or accepting somewhat lower profits.

No doubt they could.  The New York Times could also afford to raise its subscription prices and send the extra money to Wal-Mart workers.  Or they could lower Steven Greenhouse’s salary by 5% and send it on to a Wal-Mart employee.

That sounds silly, but that’s really what the activists want.  They want Wal-Mart to charge higher prices, implicitly taxing Steven Greenhouse and anyone else who shops at Wal-Mart in order to raise the well-being of Wal-Mart workers.  Exam question for economics undergrads: Explore the ramifications of such a policy.   Who wins and who loses?  What businesses will expand and which will contract?  In your answer, please reference Bastiat’s insights into the seen and the unseen [4].

Actually, the Times should raise Steven Greenhouse’s salary.  I bet he’d like a better life.  Let’s start a foundation to improve salaries at the New York Times.  The paper makes money.  They could afford to make a little less.  And many of the Times reporters live in New York City which is very expensive.  They’re underpaid.

The article closes with a fascinating conjecture.  Paying higher wages wouldn’t punish Wal-Mart.  It would actually increase profits:

But Burt Flickinger, another retailing consultant, said it would be in
Wal-Mart’s long-run interest to pay better. “Wal-Mart’s turnover will
be close to half a million workers this year,” he said. “By paying
higher wages, Wal-Mart will make its employees happier and will reduce
turnover. A lot of its new workers, for instance, don’t know where to
stock things. Higher wages will mean more productivity per person, and
that should help raise profits.”

So Burt Flickinger knows more about what’s in Wal-Mart’s self-interest than Wal-Mart’s managers and CEO.  Impressive.  Memo to Burt: you’re in the wrong field!  You’re wasting your talents—shut down your consulting business and get into retailing!

This would be funny, but it has the effect on the reader of making the activists even more sympathetic.  Their plan is a free lunch.  Higher pay for Wal-Mart’s workers AND more profits.  It’s what they call a win-win.

It would be nice if people understood the role of profits in a free society.  Something for all of us to work on.

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URL to article: http://cafehayek.com/2005/05/can_walmart_pay.html

URLs in this post:

[1] reports: http://www.nytimes.com/2005/05/04/business/04wages.html?

[2] a fake news story: http://cafehayek.com/2004/09/the_new_media_w.html

[3] Wal-Mart’s: http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=WMT

[4] seen and the unseen: http://econlib.org/library/Bastiat/BasEss1.html

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