Yesterday, we looked at the benefit to McDonald’s of having its workers subsidized by state and federal aid. Today, its Wal-Mart’s turn. Recall our discussion last month on the related subject of “How McDonald’s and Wal-Mart Became Welfare Queens.” We learned that employees of these two companies are often the largest recipients of aid in their states.

McDonald’s recently found itself in the spotlight courtesy of its “McResource” line — the company help line that helps its poverty-level, full time employees enroll in various welfare programs. A recording of that McResource line sparked outrage, driving this issue into public view.

More recently, Wal-Mart’s holiday public-relations headache began when a Canton, Ohio, store decided to hold a food drive for needy local families for the holidays. What made this a PR nightmare was that the needy families were full time Wal-Mart employees who were working in the store holding a food drive.

Thus, our questions over the arc of these columns about some of the largest retailers in America — Wal-Mart is the single largest private employer in the country; McDonald’s, the largest fast food chain – are simply this:

Continues here

Category: Earnings, Retail, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “Always Low Wages? Wal-Mart’s Other Choices”

  1. scone says:

    Costco pays pretty well, at least compared with WallyWorld, so it can be done. Now, obviously if the stuff they sold were made in America, at factories paying decent wages, then you’d see some real change. Yeah I know, dream on, voyager.

  2. Alex says:

    One way to look at this issue is administrative efficiency. I am not up on the latest costs per dollar paid out to beneficiaries, but it costs quite a lot for the administration to pay out the benefits. So as I see it, we are actually paying (amt paid) X (cost of administration) to subsidize wages at the profitable organizations.

    All of this is just absurd. What is next? We just pay the money directly to these companies?

  3. Phil says:

    By keeping costs,including wages down, Wal-Mart is able to keep prices down. The subsidy you mention may directly impact the 1.2M US workers but it also affects the buying power of the 100M customers that shop there every week, many of which are low income earners. Comparisons of grocery prices between Wal-Mart and traditional grocery outlets translates into about two weeks of free food. Not a trivial factor for their customer base.

    Will Wal-Mart smile politely and say “Happy to help” when their bottom line is cut in half? Or will they reduce the number of employees per store, reduce the number of full-time employees, and raise prices? Will investors find other places to get a better return on their dollar?

    Economics, I guess is about choices.

    • Right. I choose not to subsidize for profit companies with taxes where ever I can.

      That goes for ethanol and stadiums as well

    • postpartisandepression says:

      Yeah Phil- the government is helping Walmart drive out mom and pop businesses and destroying downtowns. Why do think so many customers need to have those low prices to survive? Because so many of them work for Walmart and McDonalds and can’t make ends meet.

      Besides I would love to see Walmart take its ball and go home because it can’t compete without its subsidies. And communities would be better off without them as well.

  4. S Brennan says:

    In principle, I have no problem subsidizing wages, but for a stated national goal. Say for example, the retention of highly skilled tradesmen, welders, machinists and other who might lose their jobs through China targeting their business sector for acquisition. Or those workers who have to compete against China’s currency manipulation which forces a ~33% price hike onto US Manufacturers.

    However, in the case of Wal-Mart, the workers are not threatened by off-shoring, quite the contrary, they can NOT be off-shored.

    Additionally, let’s not forget Wal-Mart is subsidized by the Chinese Government’s industrialization program, currency manipulation and police state tactics used against workers who rebel at the low wages paid at Wal-Mart subcontract factories in China…also, Wal-Mart’s use of political prisoners/slaves in the production of it’s merchandise is part of a pretty repulsive business plan.

    I think if we were to peel back the numbers we’d find that America’s largest employer is not viable on it’s own. It has been allowed to plow through the US economy, like Sherman to the sea, a phantom machine that owes it’s existence to government intervention by China’s minions in DC and China’s Mandarins in Beijing.

    But with Michelle Obama representing Wal-Mart, I feel pretty sure that Barry’s attempts to level the playing field in the US will be effectively thwarted.

  5. bigsteve says:

    I realize that we have to adapt to the new economy which is world wide. But really do you think anyone will take a trip to China to buy their hamburger or groceries? There is no reason concerning service industries not to raise minimal wages to the point where government welfare is not needed.

    I work in heavy industry (power) and we make very good money. But if the strategy was to low ball like Walmart we could not compete. Our industry is very capital intense so unlike most business models wages are a small component of cost. By employing only the best talent no matter what it cost efficiencies overcome cheap foreign labour. Foreign organizations study us to see how we do it. At least in my profession one person can be worth much more than another. So in this end of the economy a higher minimal wage is not relevant.

    This argument is really about who’s pocket a dollar will rest in. Will that dollar rest with a few people who have manipulated the market and politics or the vast majority of us. If you add in the social cost of Walmart’s practices they really are not that cheap. They have socialize their cost But privatized their profits. That is not true capitalism.

    • formerlawyer says:

      “They have socialize their cost But privatized their profits. That is not true capitalism.”

      I would beg to differ – this is the definition of true capitalism. Now if one wants regulated capitalism, such as child labour laws, payroll taxes, anti-monopoly laws, sane financial regulation and minimum wage laws – that would be the capitalism I could support.

    • the pearl says:

      Wal Mart is the big fish in the pond, however, ANY EMPLOYER of any size in any industry, public or private that employs a worker that also receives government assistance is guilty of socializing their cost and privatizing their profits.

    • formerlawyer says:

      “They have socialize their cost But privatized their profits. That is not true capitalism.”

      I would beg to differ – that is the true definition of unbridled capitalism see Marx.

      Moderated capitalism, whether it is by government regulation e.g. child labour laws, anti-monopoly laws, minimum wage, pollution standards or incentivized marketplaces e.g. patent monopolies, central banking manipulation of interest rates, carbon trading schemes etc. that uses the power of free market capitalism for social ends (however those are defined) is something I think we can agree is the best way(TM) forward.

  6. I think the focus should remain on the $213,255 in sales per employee which means raising prices just 5% and adding it to labor compensation adds $10,650 to their $12,650 pay for a $23,300 total – double what they make now. That’s 2.2M people making $23Bn more and putting that money back into the community – even back in WMT.

    The only argument WMT has is that, if they raise their prices 5%, then they won’t be competitive (with people who pay real wages is the end of that sentence) but then they should EMBRACE the minimum wage going up, so everyone has the same cost increase to pass on.

    Now, do I mind paying 5% more for MCD or WMT in exchange for my friends and neighbors (not to mention my children) doubling their minimum wage salaries? No because I know that makes for a better community overall – like we used to have in the 70s, when there was dignity to the average job!

    • Iamthe50percent says:

      If you liked the ’70s, you would have loved the ’60s! The ’70s are actually when it started to come apart, in no small way due to new financial instruments (30 and 60 day paper) and the privatization of S&L’s which used to be mutual associations before builders took them over as private piggy banks causing a banking crisis (sound familiar?). In the 1960′s unions were still strong and the American worker had the best living standard in the world. The stock market did well too until unbridled greed did the small investor in (sound familiar again?).

  7. the pearl says:

    Barry, how did you compute the $5,815 per worker of government assistance? How many hourly employees in the U.S.? I am a bit confused by the wording of your intro sentence to the Bloomberg article. I am not being combative, but would like to see who is actually receiving the assistance in much greater detail.

  8. rwboomtown says:

    I fine rebuttal to your logic Barry. http://cafehayek.com/2013/12/an-open-letter-to-bob-keener.html

    Where does it end and who decides?

  9. Frilton Miedman says:

    I’m sick of debating with nit-wits, I own a small business, increasing min wage to millions of workers increases the size of my potential market, I don’t give a rats ass what some Kudlow-wannabe, armchair economist trolling Bloomberg’s comment sections has to say.

    Business sites with social forums attract a heavy concentration of aspirational types with no real world experience in business who are largely insulated or disconnected from reality – those who blindly adhere to their Fox / CNBC “educations”, puking cookie cutter talking points solely because they take what they hear on Fox as factual (Plato’s allegory),

    I need more customers, not defunct economic theory & ideological insult when stating the obvious.

    Just one more problem that has roots in money influencing politics, get the money out so our government can get back to answering to its people.

    • willid3 says:

      yup, as long as you have customers, you have a chance at making a business fly. but loose customers will lead to bankruptcy eventually. it also seems to be true of large companies too. they may profitable for a time, but once their cost cutting gets too deep, they lack of new sales (when you have fewer and fewer customers that tends to happen) will lead them to bankruptcy too. but then they can cut all sorts of expenses (except executive pay of course!!!)

  10. wally says:

    This is exactly like dealing with a passive-aggressive person who takes the position that he or she will cause a problem so that you are forced to fix it.
    By not paying living wages they are dumping a problem on all of us. Problem is, the passive-aggressives behind this scheme are making far more money than most of the rest of us.
    It’s an abusive scam.

  11. Alex says:

    I think all this underscores a fundamental question we need to answer regarding such federal assistance. Do we see it as some sort of temporary stop-gap or do we wish to bring people above some poverty level (not sure how that is set)? If the former, then we should make such benefits very temporary and then the subsidy for Walmart will be negligible. If we really want these benefits to put in a floor for people in our society, then it makes little sense to distribute it in this way.

    I am in favor of the latter by the way, just so you all know where I stand. Just my opinion on that. But the logic of what we are trying to accomplish here, I think we should all agree we should strive for consistency regardless.

  12. Molesworth says:

    So, how does one go about putting the full costs of shopping at Wal-Mart back on the customers and the company itself?
    I don’t shop at Walmart (or McD) but I’m supporting some of their workers (the ones using govt assistance programs to supplement their lives) through the taxes I pay.
    What is my option?

    • Frilton Miedman says:

      The argument, for decades, is that although WMT destroys mom n’ pop’s, it makes up for it in lower prices to the benefit of the local economy.

      That argument is moot if WMT is paying so low that employees are entitlement dependant.

      If their mantra is “cheap prices”, they should include a disclosure that you’re taxed the difference.

  13. supercorm says:

    Empirical evidence on the effect of boosting the minimum wage suggests that the adverse employment effects are small and are primarily concentrated on workers who are under age 20, and those minimum-wage workers account for less than a quarter of all workers earning the minimum wage.

    Even using opponents’ estimates of the adverse employment effects of a minimum-wage hike, low income workers as a whole end up considerably better off after the minimum wage is raised because the weekly earnings gains enjoyed by low-wage workers who remain employed is considerably bigger than the weekly earnings lost as a result of lower employment.

    Additionally, for scare mongerers, those minimum-wage type jobs aren’t going to be ship to China.

    Similarily, when the population is growing, you end up selling more. When its growing wealthier, the impact is the same. No wonder why we have a global population growth falling, followed by a fall in inflationary pressure and a lack of top-line growth and profits for the world, as a whole. US companies are seeing profit growth, but stagnating revenues. Profit growth are on the back of higher margins (low wages, artificially low rates, weak dollar, and low effective tax rate). You are at a point where profit, as a percentage to the GDP, is at the same level that it was in 1929 …

    By the way, Henry Ford promoted the $5/day pay so his employees would be able to buy his own products. Did you know he also promoted the 5 day 40hours/week in order that his employees have spare time to enjoy the products they were buying, while giving them more time to spend even more ?! I’m not sure I’m all about those ideas to promote consumption as I tend to be very careful in not buying things I dont need, but beeing for the minimum wage hike doesn’t necessarily mean you are a liberal three hugger …

  14. sdpost5 says:

    If we just made Wal-Mart the 25th largest country, then they could make their own laws. Problem solved.

  15. Icouldabenacontendah says:

    You’re right, it hasn’t hurt Costco. I went on at considerable length on this in the Bloomberg comment space, so I’ll try to be briefer here. As Barry said, whether Wal-Mart would do this on its own is strictly a business decision, but it gave me to speculate. I remember thinking about this in the context of McDonald’s when he posted something on this subject maybe a week ago, and my conclusion was that it could only happen with a federal change in the minimum wage because no well-established company would take the risk of giving up short-term profits to competitors. I thought back to the Henry Ford example that stands out as the famous exception and rationalized that it was in the young days of a yet-to-mature industry where he held a clear competitive advantage and a dominant market position. Even McDonald’s doesn’t quite match up in terms of competitive advantage and market dominance, I thought (although maybe I’m in error). And of course we are not talking about a young industry. But now I’m thinking about Wal-Mart. Maybe the young industry thing is just irrelevant background. So let’s turn to competitive advantage and market dominance. What better example of this is there in the retail sector, or probably any other, than Wal-Mart? Like Henry Ford, Wal-Mart could start simply by thinking of the additional business it would get from its own employees, not to mention relatives and lots of other people, even with low incomes, who would just feel they’re doing right by fellow workers to give Wal-Mart their business. Customers would pay more. Many would be willing to without objection and how many defectors to other stores would there really be? Shareholders like me (through mutual funds) would take a short-term hit, but is Wal-Mart going to shrivel and die? Hardly. If I had more funds I would probably buy additional shares on the dip. Has there ever been a company in a better position to tell its shareholders to go fly a kite for a while than Wal-Mart? And I don’t believe that Target would start to eat Wal-Mart’s lunch. They would probably start to lose employees to Wal-Mart, although Wally’s turnover would certainly decline. Target customers who’ve made it a point to shop at the not-Wal-Mart would have to start asking why Target isn’t doing something as classy as Wal-Mart did. Maybe some shareholder groups would as well. I could see Target losing customers over this, and their image would suffer until they responded to Wal-Mart in kind. It wouldn’t hurt them too much if they did so. It would simply differentiate them from all of its other lower-tier competitors. Surely a hike in the federal minimum wage would soon come along to bring all the stragglers in line. I’m probably just dreaming but I do think that Wal-Mart is in a position comparable to that of Henry Ford about a century ago. If anybody could pull it off, Wal-Mart could. And it would go into the history books …. well, Kindle versions.

  16. DeDude says:

    We need to have a minimum wage of $12-15/hour. Furthermore, we need to provide a job guarantee for all. So if you are unemployed for more than 6 months, you should be able to demand that government provide you with a full time job (there are huge amounts of undone public projects and maintenance, so no big deal to have such a job guarantee). With that in place many of the public assistance programs could be cut back drastically. Only single parent or child “rich” households or those without “able bodied” adults would need long-term assistance from government. This is the only sensible way to get rid of the problem with the so-called “moochers”. If you want to take away assistance from the public, you have to make sure that there is a credible alternative for living a decent life. Otherwise you end up with a “low GDP/high crime” society like many south american countries.

    • Iamthe50percent says:

      DeDude, please run for Congress here in the 8th Illinois district. I will volunteer to work for your election. Better yet, run for Governor to replace the useless hack we have now and the knuckle-dragging troglodytes that vie to run against him.

  17. rsgiolito says:

    Great stuff, Barry, please keep it up. I think most Americans are starting to feel that Wal-Mart is getting away with something, but these numbers are shocking.

  18. victor says:

    However big WMT or MCD may be, they are not market makers reg. wages they pay, they are still market takers. The employees who get Gov. assistance get it because they qualify, until they either move up the ladder at WMT/MCD or find a better paying job (try Neiman Markus) or quit participating in the labor market all together. All suggested social engineering schemes are just that, pipe dreams. I wonder if there are any studies reg. turnover of low paid employees at WMT/MCD: recent college graduates with social sciences majors, retired old folks no one else would hire, high school dropouts, recently released inmates from the US Gulag you know, just salt of the earth folks who prefer min. wage pay to full Gov. assistance. In North Dakota, MCD pays $18/hr. and per Huff Post, they are offering sign up bonuses of $300 but then again, the unempl. rate is 3% see: http://www.huffingtonpost.com/2012/01/21/mcdonalds-signing-bonuses_n_1220088.html#s609464title=10_Austin_TX

    • Frilton Miedman says:

      Your statement drops hard with a dull thud at “pipe dreams”, because it doesn’t explain the success of Social Security, Medicare and greatly reduced costs for social healthcare programs across the globe when compared to our “private” system..

      I worked sales years ago, the assumptive approach only works for a limited time, once the prospect catches on they start thinking for themselves.

      • victor says:

        I was strictly referring to suggestions that WMT/MCD increase the pay of their hourly workers as social engineering schemes or pipe dreams and then pointing out what happens when labor demand is high and supply is low (ND for example); and you bring up SS and Medicare, programs that at least theoretically are or should be self funded by payroll taxes which btw highly favor the well to do and slam the poor but that’s a discussion for another day, even your namesake (LOL) said that. And once again some of WMT/MCD hourly workers draw on social services simply because they qualify and just like most recipients of social services/safety nets they have jobs, low paying and/or part time. What am I missing?

      • Frilton Miedman says:

        Victor, let me yank foot from mouth to apologize, I misread.

        As for Friedman, he opposed min wages altogether, he fell short in a variety of area’s.

        Unlike Friedman, Keynes foresaw the diminishing effects of future technology on labor demand.

        I only chose this screen name as a jab at the right for constantly conflating Friedman with Hayek to suit agenda, (abolish Fed, gold standard, anti-monetary expansion in recession – not Friedman).

  19. AndreaJ says:

    The problem as I see it is –I have to pay my taxes by law and I’m free to choose to buy what I want (or not) at Walmart. So if the bright business minds at corporate Walmart figure out how my taxes can cover their bottom line, now the goal of making sure all citizens have basic shelter needs met, is perverted to an exploitative system where my tax money and their labor are taken together to create a profit that can’t be made by the low prices charged. Business school graduates need to account for their labor and time too–and this seems like someone would have gotten a promotion for this strategy.

  20. dgs91 says:

    Wal-mart is trying to open a new store in Reno/Sparks Nevada but the people are pushing back. Check out JustSayWhy.

    Even if you’re not from Nevada, there’s nothing wrong with joining the fight to push back Walmarts.