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What's Good for America Is Good for Wal-Mart, and Vice-Versa
Raising the Minimum Wage to $12 an Hour

During the 1950s peak of America’s post-war prosperity, Detroit was our wealthiest city, General Motors our biggest employer, and GM CEO “Engine Charlie” Wilson delivered the famously misquoted claim that “what was good for our country was good for General Motors, and vice-versa.”

Times have changed. These days retail giant Wal-Mart is our largest corporation, employing 1 percent of all American workers, but rather than being praised for its achievement is routinely vilified by political activists and the media. In its defense, the company has released studies claiming that its low price approach to consumer goods annually saves American shoppers vast sums of money, with much of those savings going to families of lowest income, and although specific figures have been disputed, the general point is conceded. But if Wal-Mart has been such a great business success and saves its customers at least ten or twenty billion dollars each year, why does it continue to attract such widespread hostility?

The main charge leveled against Wal-Mart is that its wages are too low, and critics have a point. Berkeley’s Labor Research Center has estimated that almost a million of Wal-Mart’s American workers earn less than $12 in hourly pay, with 300,000 averaging only $8.75. Surviving on such low incomes is difficult in America, and a few months ago a local store’s campaign to persuade Wal-Mart workers to donate food to other Wal-Mart workers became a national media scandal. Each year Wal-Mart’s struggling employees receive billions of dollars in government social welfare benefits, with the costs borne by the general taxpayer. Just as General Motors was the national symbol of America’s high-wage manufacturing economy, Wal-Mart has come to represent our low-wage service sector, which many Americans equate with the decline of our middle class society.

So why doesn’t Wal-Mart just improve its public image by raising its wages? Those same Berkeley researchers estimated that the company could boost its pay to a minimum of $12 per hour and cover the additional expense by a one-time price hike of just 1.1%, costing the average Wal-Mart shopper only an extra $12.50 per year. Surely if hundreds of thousands of the company’s lowest-wage employees were given immediate raises of one-third or more, they’d sing Wal-Mart’s praises, while performing their jobs with greater diligence and lower turn-over. One hundred years ago, Henry Ford doubled the wages of his assembly-line workers, providing them incomes high enough to buy the cars they themselves produced and helping to create the great American middle class of the twentieth century. Wal-Mart workers are also Wal-Mart shoppers, and many of the extra dollars they might receive would go right back to the company that paid them.

The difference is that while Ford’s industrial breakthroughs had given his company a near-monopoly on mass-market automobiles, Wal-Mart’s absolutely rock-bottom prices represent its chief selling point, allowing even a small markup to be easily exploited by the company’s able competitors. A general increase in wages and prices across the entire retail sector might greatly benefit companies and workers alike, but any attempt at organizing such collective corporate action would obviously run afoul of America’s strict anti-trust laws.

Fortunately, what some government restrictions prohibit, other government regulations might also enable. Consider the consequences of raising the minimum wage to $12 per hour.

Not only would Wal-Mart and its competitors suddenly be able to do what was best for both shareholders and employees, but the same large hike in wages and disposable income would also go to tens of millions of other low-wage American workers. McDonald’s might need to raise the price of its cheeseburgers by a dime and American-grown agricultural products would cost 2% more on the grocery shelves, but some $150 billion of extra income would flow each year to the sort of households that spend every dollar they earn, producing an enormous, ongoing economic stimulus program, a stimulus program funded entirely by the private sector. And a large share of those tens of billions in additional disposable income would go toward boosting the revenues at Wal-Mart, McDonald’s, and the other corporations that employ those same workers.

Corporate executives have sometimes recognized these facts over the years. In 2006, Wal-Mart CEO Lee Scott testified before Congress in favor of a large hike in the minimum wage, arguing that even then Wal-Mart shoppers were becoming too poor to shop at Wal-Mart.

In recent years, the growing impoverishment of non-wealthy Americans has become a major drag on the consumer spending that drives our economy, and a hefty rise in wages and disposable income would be a tonic for our continuing economic stagnation.

Economists have traditionally feared that a much higher minimum wage might cost workers their jobs, but today the vast majority of low-wage Americans are employed in the non-tradeable service sector, usually involving personal contact. These jobs are completely insulated from foreign competition and also very difficult and expensive to automate. Such workers would keep their jobs, but their incomes would rise by 30 or 40 percent, and most companies would cover the higher costs by a one-time price hike averaging much less than 1% across all our goods and services.

The American taxpayer would also be a huge beneficiary. Each year, over $250 billion in social welfare spending goes to working-poor households via government programs such as Food Stamps, EITC checks, and Medicaid. As millions of those workers became much less poor, they would automatically lose their eligibility for anti-poverty assistance, saving taxpayers many tens of billions of dollars each year. Government programs often function as very leaky buckets, with a substantial fraction of the money spent never reaching its supposed beneficiaries. But wages paid by an employer go straight to the recipient, except for the portion withheld in government taxes.

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Transforming millions of net tax recipients into net tax payers would also have a salutary impact upon American politics. During the last election campaign, Republican Mitt Romney was vilified for pointing out that 47% of all Americans paid no income taxes and hence were deaf to his message of reducing wasteful government spending and cutting taxes. But a $12 minimum wage might shrink that non-taxpaying total by ten or fifteen percentage points, giving millions of additional voters a direct stake in demanding government efficiency.

Wal-Mart has become a national symbol of the poverty wages paid to millions of ordinary working Americans, who can only survive because of their taxpayer-funded social welfare subsidies. But Wal-Mart is actually a great American success story and those economic problems are merely a consequence of the mistaken government policies of the last forty years, which have allowed a collapse in the real value of the minimum wage despite the simultaneous doubling of American labor productivity.

Boosting the minimum wage to $12 would be good for Wal-Mart workers, Wal-Mart customers, and Wal-Mart shareholders. And what’s good for Wal-Mart is good for America.

(Reprinted from Forbes by permission of author or representative)
 
• Category: Economics • Tags: Minimum Wage, Walmart 
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  1. This one is easy and can be summarized by two points:

    (1) Ezra Pound was beyond doubt an aesthetic Fascist but he was also intimately familiar with Finance Capital, and though wrong-headed often enough, occasionally hit the nail on the head better than anyone else left or right. To wit: “[the]imbecility of striking for higher wages while leaving the control of the purchasing power of those wages in the hands of the extortioners is not monopolised by the labour Parties.”

    (2) Walmart itself is a cog in an economy run by, for, and of Finance Capitalists who long ago sold out the United States industrial base–to China among other places–and maintained an illusion of livability for much of the populace, partly by debt credit and partly with cheap imports made by overseas industry and labor. What Walmart pays or does not pay its workers is thus a minor aspect of the structure. In fact the only difference between Walmart and the high end middle men is the profit margins. A pair of high end athletic shoes made for two dollars overseas, for example, fetches $100, while imported garlic makes a few pennies, but it is all part of the same scheme.

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  2. I remember when Sam Walton was alive that Walmart had a push for “sell American” – those days are long gone. Walmart sold Americans their jobs down the river by a conspiracy of the richest financialists in America. Walmart sells Chinese made goods almost exclusively. Its culture is to relentlessly pay as little as it has to for anything. It’s been guilty of aggressively instigating foreign bribery, rather than being a passive victim of it, with the knowing connivance of and reward by its Little Rock executives. What’s been good for Walmart has been in America’s interest, if America’s interests are defined in terms of those of the donorists who buy up and benefit from American government policies that hurt most of the American people.

    Walmart prefers offloading responsibilities to workers through totalitarians. The concept of a democracy where the majority of people could actually vote their own interests is not in their best interests. No wonder it has been found to be a major employer of exploited illegal immigrants through subcontractors – even keeping them caged while their direct employers exploit them onsite during nights when there is little chance of discovery of the arrangements. Even the miserliness of a minimum wage is too much for some of the wealthiest corporate owners in the world not to be tempted to lower.

    Walmart’s richest men in America, conflated with “America” – a paradox that General Motors employing Americans making things in America never was guilty of – now represents the purist fulfillment of Adam Smith’s Vile Maxim: “More for me, less for everyone else.”

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  3. I doubt raising the min wage would lift too many people from poverty or lessen the welfare rolls.

    the facts indicate only 7% of minimum wage workers live in poverty. The reason for this, most min wage workers are youngsters still living with their parents or are married to spouses who earn over $30,000 per year.

    raising the min wage would also force Wallmart and others to raise the wage of those currently earning $12 per hour , as they would demand pay raises when they see inexperienced , lower skill workers earning $12 per hour, many of whom started out earning min wage and now have the skills and experience to earn more.

    raising the min wage has been shown to increase the unemployment rate, as many min wage earnings cannot justify earning $12 per hour, so a rise in min wage will hurt those entering the workforce trying to get the experience and skills required to earn more.

    in my first job I earned just $5 per hour, but quickly developed the skills to earn $9 within 6 months, and after a year I was earning $12 per hour. This was in 1987 when I worked as an apprentice at an auto body shop. I would never have been hired if he had to start me at $9 per hour

    the biggest issue is massive immigration, which has put downward pressure on wages.

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