Wal-Mart reality check

by Russ Roberts on May 12, 2009

in Country Problems, Wal-Mart

Cool people (and many of my friends, cool and otherwise) hate Wal-Mart and sneer at those who shop there. It is one thing to choose not to shop there. But to view as evil, an enterprise that has figured out a way to do something more cheaply than its competitors and pass on the savings to consumers, is a sign that something is deeply wrong with the way we explain to our children and students what capitalism is about and why it's a good thing.

I have no idea who Charles Platt is. I'm sure he has biases. But his story (HT: Blackadder, in a comment on this Blogging Heads episode) of his experience should be read and re-read. Haters of Wal-Mart have trouble explaining why hundreds of people apply for jobs at Wal-Mart whenever there is an opening or continue to want to work for them when they move, as Platt describes when he goes to his training session:

A week later, I found myself in an elite group of 10 successful
applicants convening for two (paid) days of training in the same
claustrophobic, windowless room. As we introduced ourselves, I
discovered that more than half had already worked at other Wal-Marts.
Having relocated to this area, they were eager for more of the same.

Why? Gradually the answer became clear. Imagine that you are young
and relatively unskilled, lacking academic qualifications. Which would
you prefer: standing behind the register at a local gas station, or
doing the same thing in the most aggressively successful retailer in
the world, where ruthless expansion is a way of life, creating a
constant demand for people to fill low-level managerial positions? A
future at Wal-Mart may sound a less-than-stellar prospect, but it's a
whole lot better than no future at all.

In addition, despite its huge size, the corporation turned out to
have an eerie resemblance to a Silicon Valley startup. There was the
same gung-ho spirit, same lack of dogma, same lax dress code, same
informality – and same interest in owning a piece of the company. All
of my coworkers accepted the offer to buy Wal-Mart stock by setting
aside $2 of every paycheck.

Platt's account of what he experienced is entertaining and informative. His economics is good too:

My starting wage was so low (around $7 per hour), a modest
increment still didn't leave me with enough to live on comfortably, but
when I looked at the alternatives, many of them were worse. Coworkers
assured me that the nearest Target paid its hourly full-timers less
than Wal-Mart, while fast-food franchises were at the bottom of
everyone's list.

I found myself reaching an inescapable conclusion. Low wages are
not a Wal-Mart problem. They are an industry-wide problem, afflicting
all unskilled entry-level jobs, and the reason should be obvious.

In our free-enterprise system, employees are valued largely in
terms of what they can do. This is why teenagers fresh out of high
school often go to vocational training institutes to become auto
mechanics or electricians. They understand a basic principle that seems
to elude social commentators, politicians and union organizers. If you
want better pay, you need to learn skills that are in demand.

The blunt tools of legislation or union power can force a
corporation to pay higher wages, but if employees don't create an equal
amount of additional value, there's no net gain. All other factors
remaining equal, the store will have to charge higher prices for its
merchandise, and its competitive position will suffer.

This is Economics 101, but no one wants to believe it, because it
tells us that a legislative or unionized quick-fix is not going to work
in the long term. If you want people to be wealthier, they have to
create additional wealth.

To my mind, the real scandal is not that a large corporation
doesn't pay people more. The scandal is that so many people have so
little economic value. Despite (or because of) a free public school
system, millions of teenagers enter the work force without marketable
skills. So why would anyone expect them to be well paid?

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