Study: Increasing Wages at Wal-Mart Would Barely Affect Shoppers

Mike Elk

A worker collects shopping carts outside a Wal-Mart store in Mount Prospect, Ill.

Wal-Mart is the largest pri­vate-sec­tor employ­er in the Unit­ed States. It employs more than 1.4 mil­lion work­ers here, but pays them an esti­mat­ed 12 per­cent less than aver­age retail work­ers in the coun­try. Many argue that, while unfor­tu­nate, such low wages help poor fam­i­lies by allow­ing them to pur­chase goods cheaply.

That argu­ment was most famous­ly artic­u­lat­ed by the cur­rent Nation­al Eco­nom­ic Coun­cil Deputy Direc­tor, Diana Far­rell, who before she joined the White House pub­lished a paper in 2005 titled Wal-Mart A Pro­gres­sive Suc­cess Sto­ry.” It argued that Wal-Mart could not raise wages with­out rais­ing prices, which would hurt poor and low income communities.

How­ev­er, a study released on Mon­day by Uni­ver­si­ty of Cal­i­for­nia, Berkeley’s Cen­ter for Labor Research and Edu­ca­tion found that increas­ing wages to $12 per hour would cost Wal-Mart $3.2 bil­lion if applied to all work­ers across the Unit­ed States. That amounts to about 1 per­cent of the company’s annu­al sales of $305 bil­lion. Even if Wal-Mart were to pass on the total cost of the wage increase to con­sumers, researchers esti­mate that shop­pers would pay about $12.50 more per year – or 46 cents per shop­ping trip – to cov­er the cost of the pay raise for Wal-Mart workers.

UC Berkley researcher Ken Jacobs doubts that all the costs of a wage increase would be passed on to con­sumers in the form of increased prices, because increas­ing prices would low­er the amount of goods Wal-Mart would sell.

Wal-Mart is the largest pri­vate employ­er in this coun­try and it’s drag­ging down wage job stan­dards for retail and gro­cery work­ers. It can clear­ly afford to pay work­ers a well wage,” says Jen­nifer Sta­ple­ton, assis­tant direc­tor of Mak­ing Change at Wal-Mart, which is run by the Unit­ed Food and Com­mer­cial Work­ers union.

Even if the com­pa­ny pass­es on that cost to cus­tomers, it would be the same cost as a pack of gum. Con­sumers would be open to that, instead of feel­ing guilty for shop­ping at Wal-Mart.”

Indeed, such a wage increase could real­ly help work­ers. A $12 an hour wage would mean aver­age annu­al pay increas­es of $3,250 to $6,500 for work­ers mak­ing less than $9 an hour, and $1,675 to $2,930 for work­ers mak­ing between $9 and $12 an hour. 41 per­cent of the pay increase would go to work­ers in fam­i­lies with total incomes of 200 per­cent of the pover­ty line — less than $21,660 a year for a sin­gle work­er and $44,100 a year for a fam­i­ly of four.

And the cost for the wage increase would not come out of the pock­et of poor work­ers, but 72 per­cent of the costs of this sub­stan­tial ben­e­fit would be borne by peo­ple mak­ing above 200 per­cent of the pover­ty line.

Despite sta­tis­ti­cal evi­dence say­ing that rais­ing labor prices has very lit­tle effect on con­sumer prices, advo­cates of low wages claim wages must be keep low to keep con­sumers good cheap. We hear this same argu­ment applied to free trade: Goods are cheap­er from Chi­na and oth­er low-wage coun­tries because these coun­tries pay work­ers a low­er wage.

Even for most man­u­fac­tur­ing, the labor cost is a very small per­cent­age in all but some of the most rudi­men­ta­ry man­u­fac­tur­ing, like tex­tiles. For things like steel high tech or most man­u­fac­tur­ing that is heav­i­ly cap­i­tal inten­sive the labor impact is min­i­mal,” says Scott Paul, exec­u­tive direc­tor of the Alliance for Amer­i­can Man­u­fac­tur­ing, an alliance of busi­ness­es and orga­nized labor. Labor costs in Chi­na amount to less than 10% of over­all cost, labor cost dif­fer­en­tial washed away by pro­duc­tiv­i­ty in the Unit­ed States.”

Paul points to oth­er coun­tries where work­ers make high­er wages than Amer­i­cans but have no trade deficit with the U.S. Aver­age fac­to­ry com­pen­sa­tion for a work­er in the Unit­ed is $32 dol­lars an hour. In Ger­many, the aver­age fac­to­ry work­er makes $48 dol­lars an hour. Despite this, the Unit­ed State has a $275 bil­lion trade deficit, while Ger­many has bal­anced trade with Chi­na. How is it that when our labor costs are $16 an hour cheap­er than Ger­many?“ asks Paul. It has every­thing to do with our trade poli­cies, infra­struc­ture poli­cies, tax poli­cies and invest­ment in skills, and very lit­tle if any­thing to do with the cost of labor.”

The new attacks on pub­lic-sec­tor work­ers’ salaries and ben­e­fits in Wis­con­sin and oth­er states have trig­gered a debate about whether labor costs place too much of a bur­den on tax­pay­ers. Hope­ful­ly this debate over pay­ing work­ers good wages won’t spill into tired old debates about free trade.

Mike Elk wrote for In These Times and its labor blog, Work­ing In These Times, from 2010 to 2014. He is cur­rent­ly a labor reporter at Politico.
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