The Many Forgotten Flaws in the Walmart Wage Argument

When I was in high school there was a window that separated the administrative offices from the main hallway on which was typically posted school news and such.  One day one of the teachers posted a cartoon on the window.  On the left side of the cartoon was a professional athlete living in squalor, and on the right side was a teacher living in a mansion.  The caption read “What a teacher would be paid if her wage reflected her worth.” The teachers thought this was especially clever.

I didn’t.  It was obvious to me that if my teachers were paid significantly more — in an extreme example, if they did make the sort of money that athletes do — then the competition for those jobs would become correspondingly greater, and those people currently holding those jobs would find that their qualifications did not match those of the new applicants with résumés commensurate with higher incomes.  The applicant pool at $50,000 would not be the same as at, whatever, $100,000, and a stronger applicant pool would mean a greater expectation of qualifications.  So those people pining for higher salaries today would be the people out of work tomorrow.

I remembered the cartoon recently when I was asked to comment on a video put out by Slate magazine which argued that Walmart could save taxpayers $300 million per year if it would raise its average hourly wage for cashiers from $8.81 to $13.63, thereby elevating its cashiers above the limits to collect food stamps.  The video says this would cost Walmart $4.8 billion, but that it could pass the cost onto consumers painlessly by simply raising its prices by 1.4%, which nobody would notice.  So what that a box of macaroni and cheese would cost $.69 instead of $.68?

Well…

I’m not going to endeavor here to challenge the mathematics of the proposal.  Others have already done that (such as in this video), and it serves no purpose to duplicate their efforts.  But there are some faulty assumptions that should be addressed.

First, and perhaps most obvious, is that this entire theory is based on the assumption that there’s $4.8 billion out there of extra revenue that Walmart just hasn’t bothered to collect.  If Walmart is a greedy corporation that wants to maximize revenues (which it undoubtedly does), and can do so by simply increasing costs by 1.4%, why has it not done so already?  Is it possible, possible, that perhaps the M.B.A.’s at Walmart, who monitor millions of consumer transactions per year and operate one of the most successful corporations in history, know a little bit more about price points than the bloggers over at Slate, and that just maybe they have already set their prices at levels designed to maximize revenue?

Secondly, even assuming Walmart could simply raise an extra $4.8 billion, the argument that Walmart should impose $4.8 billion in higher costs on American consumers to save American taxpayers a small fraction of that amount of money is absurd.  Why spend $4.8 billion to save $300 million?  That’s a return on investment of negative 94%!

Third, it wouldn’t even save $300 million because shifting $4.8 billion of income from Walmart shareholders to low-income workers, who would pay a lower rate of taxes on that money, would result in lower tax revenues.

Fourth, the proposal is actually, in effect, a regressive tax.  80% of American tax revenues are collected from the top 20% of taxpayers, so it’s the rich who are paying for food stamps.  But Walmart shoppers tend to be poor and middle class, so to pass the cost from taxpayers onto consumers is to pass the cost from the wealthy to the poor and middle class.  This is contrary to what should be desirable public policy.

Fifth, if Walmart starts paying its cashiers fifty percent more, the rest of the Walmart employees up the food chain will expect increases too.

But perhaps most importantly, an increase in wages this dramatic has the potential to price a lot of poor people out of the market for these jobs.  If Walmart suddenly started paying $14 per hour instead of $9 per hour, there would be much more competition for those jobs, and the poor people currently holding those jobs or hoping to get them would be out-competed by unemployed college graduates, and others, dying to make that kind of money.  Heck, any kind of money!  Keep in mind that 40% of recent college graduates are unemployed, and lest you think college graduates would not reduce themselves to such work, consider that 50% of recent college graduates work jobs that don’t require a degree.  Seventy-one percent of college graduates last year graduated with debt.  How many of them will have better options to begin paying off that debt than working a job with a $28,000 starting salary while they wait for something else to come along?  What about people who were making $20 per hour who just lost their jobs?  Now they’ll be in the competitive pool as well.

As it is, competition for the $9 cashier jobs is fierce.  When Walmart opens a new store, it is not uncommon for it to receive over 10,000 applications for only 300 jobs.  The Washington D.C. Walmart received more than 23,000 applications for only 600 jobs.  And it is fair to assume that these applicants are almost uniformly unskilled workers with next to nothing on their résumés.  Now imagine Walmart started offering starting salaries more commensurate with skilled labor, and all those impoverished people looking for work would be out-competed for those jobs by people who have achieved more.

It’s easy to hang a smug cartoon or make a video that oversimplifies and ignores basic economic realities, and then self-righteously pat ourselves on the back for being on the side of the little guy.  Being on the little guy’s side, however, should not mean advancing half-baked policies that lead to his ruin, while creating an economic climate inimical to investment and job creation.  We all agree that America should be an upwardly mobile society.  But upward mobility cannot be achieved with artificial price controls that only cause more problems than they solve.  Real and sustainable upward mobility can only be the result of people working to improve themselves, and along with it, their value.

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