What are Walmart’s wage incentives?
Suppose you have a employer – think Walmart – that has a ubiquitous presence nationally – think the United States. Is there ever a point, as that employer grows in size and employs more and more of the nation, that its agenda becomes aligned with the national agenda of prosperity and well-being?
That’s the interesting assumption behind a recent Guardian article called Walmart and Downton Abbey: rampant inequality and detachment from reality written by Sadhbh Walshe. From the article:
The best thing the top brass at Walmart could do to preserve their own privileged status would be to raise wages for their workers. A recent study by the progressive thinktank Demos illustrated that the company could afford to pay its workers an additional $5.83 an hour (pdf), enough to bring their wages just above the poverty level, simply by ending the company’s share-buyback program. This way prices could stay as they are but sales would increase as more workers would have more money to spend.
This comes up a lot in my Occupy group as well – the idea that raising wages would be good for low-wage companies like McDonalds and Walmart. The question I have is, is it true? (Aside to readers: if you’re aware of a paper that does this analysis, please tell me!) My guess is no.
Let’s put it this way. If I’m a small company then it’s pretty clear I don’t want to raise wages if I don’t have to. The lower the wages for my workers are, the more I get to keep or spend on other things. But as I grow in size, it might actually make sense, depending on context. If I employ 50% of the population, which is indeed an enormous number of people, then how much I pay them goes straight to the bottomline of how much they spend at my store. But again, it all depends on context.
And there’s and important bit of context going on here, which was beautifully explained recently by Bloomberg columnist Barry Ritholtz in his column entitled How McDonald’s and Wal-Mart Became Welfare Queens. From that article:
Wal-Mart, the nation’s largest private sector employer, is also the biggest consumer of taxpayer supported aid. According to Florida Congressman Alan Grayson, in many states, Wal-Mart employees are the largest group of Medicaid recipients. They are also the single biggest group of food stamp recipients. Wal-mart’s “associates” are paid so little, according to Grayson, that they receive $1,000 on average in public assistance. These amount to massive taxpayer subsidies for private companies.
My point is this. Given their welfare queen status, the agenda of Walmart and other huge low-wage employers is not actually aligned with the nation’s. As long as it can lower wages below poverty level, leaving Uncle Sam to make up some of the difference, and either pocket that difference or distribute them to their shareholders, they’ll continue to do so. The incentives are wrong.
And instead of appealing to their greed and telling them it’s in their best interest to raise wages, which I don’t believe is true (but I’d love to be wrong!), we need to raise political awareness about how the system actually works. And my guess is we should either raise the minimum wage - and then tie it to inflation - or establish a basic income guarantee.