Paying More Doesn't Solve the Problem
Is Wal-Mart Good for the American Working Class?
Paying More Doesn't Solve the Problem
E-mail debates of newsworthy topics.
June 27 2006 1:02 PM

Is Wal-Mart Good for the American Working Class?



I don't find my views on Wal-Mart quite as counterintuitive as you seem to. Most economists who call themselves liberal, progressive, or Democratic probably feel the same way I do (but not all—your last post noted two dissenters, Jared Bernstein and Josh Bivens of the Economic Policy Institute, both excellent economists).


Slate probably chose a noneconomist for the other side of this dialogue because they thought 1) you actually know what you're talking about and 2) the dialogue wouldn't devolve into competing studies and arguments over statistics. Judging from your first post, Slate was right on one point. I'll spare you a detailed response to your numbers; suffice it to say that my 2005 paper attempted to appraise the evidence in the exploding field of "Wal-Martology," sorting out real contributions from the meaningless "studies" released by financially interested parties. Bernstein and Bivens critique one Wal-Mart-funded paper that I cited (and their critique itself has some problems), but not one that I base "much of my case on," as you say. In fact, I cited a lot of evidence in yesterday's post, but none of it was from that disputed study.

But let's take a step back. You were kind enough to stipulate, "If you're right that Wal-Mart's low wages are redeemed by its low prices so that Wal-Mart offers a net boon to the working class, then I'll fold up my placards and go away." I'm afraid I can't reciprocate. Even convincing me that Wal-Mart paid lower wages and didn't offer any cheaper prices wouldn't be enough to win me over.

Here's why. I live near a Best Buy, the Wal-Mart of electronics stores. Directly across the street is Stereo Exchange, a boutique outfit with high-end equipment that is consistently rated the best stereo store in New York. Best Buy has a great selection and it's pretty cheap, but don't expect the salespeople to know the difference between a plasma TV and an LCD TV—if you manage to attract their attention in the first place. Stereo Exchange has several fawning and knowledgeable staff members, typically serving the one or two customers in the store at any given moment.

I assume that Stereo Exchange pays its staff a lot more than Best Buy does. But this doesn't make Best Buy a bad company or prove that it exploits its workers. No one would say that Wal-Mart exploits its workers because they're paid less than doctors. Nor would anyone say that Wal-Mart is a terrific company because it pays its employees a lot more than McDonalds does.

Now imagine that Best Buys across the country were replaced by Stereo Exchanges. We would have more "good jobs" and fewer "bad jobs." The average wage in the electronics retail sector would go up. But where would all the former Best Buy workers go? Most of them wouldn't work at Stereo Exchange. Maybe some would take a pay cut and work at McDonalds. Maybe others would get lucky and find this was just the prod they needed to find a better job. It's hardly obvious this would be an improvement.

I also confess to not knowing how to figure out what Wal-Mart "ought" to pay or can "afford" to pay. Wal-Mart employees are paid more than about one-third of American workers. Does that make Wal-Mart a nicer, better company than the lower-wage employers? Does it make Goldman Sachs—with its average compensation in the hundreds of thousands of dollars—a friendlier, more moral company than Wal-Mart? And if our concern is low wages, why don't we focus on the roughly 40 million jobs that pay even less?

You seem to think that Wal-Mart can afford to pay more. But I'm not sure how you can tell. Any company with positive profits looks like it could pay more (although Wal-Mart, with a stock price down 10 percent since 2000, may not be the best candidate). Or maybe you think Wal-Mart could fund its pay raise with higher prices for its shoppers, a group that makes about as much as its workers do? Or else you believe that you know more about running a corporation than Wal-Mart CEO Lee Scott, who doesn't seem to realize that if he pays workers a little more they'll be better motivated and won't turn over as much, raising his profits and making everyone happier?

At this point in the conversation, someone invariably brings up Costco, a wonderful company that pays its workers substantially more than Wal-Mart does (and pays its CEO substantially less than Wal-Mart does). Costco also has roughly half as many employees relative to its sales volume as Wal-Mart does. Now imagine what it would be like if Wal-Mart were more like Costco. Instead of having 1.3 million employees, it would have 650,000. These employees would be paid more and stay in their jobs longer, allowing Wal-Mart to be choosier about whom it hires. And would the other 650,000 people, the less choice picks, so to speak, be better off? I have no idea. Do you?

But maybe we should start discussing the broader issues: What's causing what you call "Wal-Martization" and I call increased income inequality, and what should be done about it?


Jason Furman is a senior fellow and director of the Hamilton Project at the Brookings Institution.

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