Wal-Mart and Wage Trends

 – By Jeff Brittain

Wal-Mart is the world’s largest retailer, with sales that represent more than 2.6% of the nation’s GDP and almost two million employees. (Greenhouse, 277) The secret to Wal-Mart’s success is it’s low prices. It achieves them through squeezing supply chains, thereby reducing  transaction costs, and by keeping wages low, as payrolls are usually around 70% of a business’s costs. (Reich, 91) Though Wal-Mart is the nation’s largest employer, full-time hourly workers averaged only $19,100 in 2007, leaving them well below the poverty line for a family of four. (Greenhouse, 279) It is clear the Wal-Mart should pay employees more, but would consumers accept the higher prices and would Wal-Mart’s share price plummet? The sad truth is that if a CEO were to raise wages at the expense of higher prices for customers and the result was lower sales, shareholders would remove the CEO and look for one who would maximize their share price. Regardless of this reality, there are ways that Wal-Mart could raise wages and prices without reducing its profits or the happiness of its customers. Furthermore, because of Wal-Mart’s impact on the larger US and global economies, raising wages would benefit people and businesses across the economy allowing them to handle paying higher prices.

Many people abhor the poor wages and long hours that Wal-Mart gives its employees, yet continue to shop there anyways. As Robert Reich said, “…most of us are of two minds: As consumers and investors we want the great deals. As citizens we don’t like many of the social consequences that flow from them.” (Reich, 89) Consumers who shop at Wal-Mart save at least $100 billion a year, and maybe $200 billion by some estimates, but are the savings worth the detrimental effects on the wages of millions of citizens worldwide? (Reich, 91) When Wal-Mart moves into a county, wages drop and retailers who can’t cut wages are often forced out of business, unable to compete with Wal-Mart’s “everyday low prices”. (Greenhouse, 279)

Wal-Mart would not even have to raise prices to increase wages. With a profit margin of 3.5 percent in 2005, Wal-Mart could potentially pay its employees $6,000 more annually, which would be more than enough to bring them above the poverty line. (Reich, 90) Lee Scott, CEO of Wal-Mart, earns more in two weeks than the average Wal-Mart employee will earn in a lifetime. The Walton family has an estimated fortune of $90 billion dollars, almost equal to the combined wealth of the bottom 40% of the US’s population. (Reich, 113) If Wal-Mart simply distributed wages more evenly it would solve the problem, but this would reduce their ability to get the best executive talent.

Wal-Mart is not the only big-box retailer pushing wages down, but as it is by far the largest retailer, it is largely responsible for creating a trend of wage reduction across the entire economy. While on one hand Wal-Mart may be satisfying the needs of low-income customers with its low prices, it may be responsible for increasing the poverty of the very customers it claims to save money. Due to the nature of what Robert Reich calls, “supercapitalism,” it may be next to impossible for Wal-Mart to change its business model without outside help. As Reich said, “ The only way for the citizens in us to trump the consumers and investors in us is through laws and regulations that make our purchases and investments a social choice as well as a personal one.” (Reich, 127) We as citizens must decide that Wal-Mart’s wages are socially unacceptable and take regulatory action to raise wages for all big-box retail workers. This would allow Wal-Mart to remain competitive while also preventing them from destroying main street and the wages of millions of people worldwide.

 

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