The Great Wal-Mart Debate
Three experts talk wages, health care and the everyday low prices of our nation’s largest employer.
Infighting, Maggie Brock, University of South Carolina, Nov. 21, 2005
Three experts talk wages, health care and the everyday low prices of our nation’s largest employer.
By Maggie Brock, University of South Carolina
As part of a national week of action organized by Wal-Mart Watch, the Center for American Progress hosted a panel debating Wal-Mart’s impact on America’s workers last week. Robert Gordon, the Senior Vice President for Economic Policy at CAP, moderated a discussion between Arindrajit Dube, Jason Furman, and Leo J. Hindery, Jr. Dube, a research economist at the UC Berkeley Institute of Industrial Relations, based his discussion heavily on his most recent study, “Wal-Mart and Job Quality – What Do We Know, and Should We Care?” Furman, former Director of Economic Policy for the Kerry-Edwards campaign and a visiting scholar at NYU’s Wagner School of Public Policy, authored the provocatively titled “Wal-Mart: A Progressive Success Story.” Hindery drew on more than 25 years of experience as a CEO of several companies including AT&T Broadband, which garnered him the distinction of being named one of Business Week’sTop 25 Executives of the Year.
The engaging debate covered a variety of topics, including Wal-Mart’s effect on wages, health care, and local economies. Here are your cliff notes.
Kind of a Big Deal
Robert Gordon: Wal-Mart is America’s largest employer. 1.3 million employees in the U.S. [Wal-Mart employs 300,000 people abroad], more people than the US Army. $250 billion in sales that accounted for over 2% of America’s GDP. If Wal-Mart were an economy unto itself, it would be China’s 8th largest trading partner, ahead of Russia, Australia, and Canada. Just yesterday, Wal-Mart announced its profits for the most recent quarter were $2.4 billion, an increase of 3.8%.
Leo J. Hindery Jr.: We have never seen anything like Wal-Mart. We’ve never seen a company grow so large and so impactful so quickly, $288 billion in revenue, $11 billion in profits. Its impacts, both good and bad, are just momentous. The thing that I find more interesting, is the fact that since 1992, [which] was the year founder Sam Walton passed, Wal-Mart has achieved its growth and success by focusing solely on the interests of its shareholders and its management with little to no regard for its employees, for communities, or for the overall American economy.
Arindrajit Dube: If you look at Wal-Mart’s growth over the ‘90s, the number of stores doubled. The Wal-Mart reach has become national. If you look at number of counties with at least one Wal-Mart, in 1988, the majority of counties did not have a Wal-Mart; in 2000, the majority did.
Everyday Low Prices
Hindery: The piece that makes this all such an important debate is indisputably price. We know that Wal-Mart customers pay at least $10 billion less for the goods they purchase than they would sans Wal-Mart…. But at what cost, I must ask, at what cost have these purchasing power benefits come?
Jason Furman: Big picture: people blow past the price issue: “yea, yea, of course, Wal-Mart has lower prices.” The price differences are staggering. Wal-Mart prices are, on average, 8 to 40% lower that what people would pay elsewhere. The total annual savings in one recent study for consumers was $263 billion, that’s $2,300 for every household in America. There are few public policies I’ve advocated that would make as big of a difference as that. Compare that to estimates of wage suppression by Wal-Mart, which was $5 billion a year due to wage suppression. It’s an enormous differential.
Hindery: The concept that they save us $263 billion – just think of it in your head. Their revenues were $288. They do not save us roughly 100%. That would imply that the revenues of this store should have been 2x. It’s not possible. It’s much closer to tens of billions of dollars, but it is not $263 billion.
It is not just cheap goods. These aren’t American goods. This company consciously seeks out cheap goods manufactured offshore under deplorable circumstances. We are losing honest American jobs to fuel this machine. The substitution is an off-shore/on-shore substitution. The fact that [Wal-Mart CEO] Lee Scott made $23 million last year – this premise that you should give all your profits to your management so that they can pass it down to the economy – that one just about did me in.
Furman: Wal-Mart lowers nominal wages by 0.8%. Wal-Mart lowers prices by 1.5-3% in the short run, and 6-12% in the long run. If you take these two sets of evidence together, it would say that the low prices that Wal-Mart brings aren’t just enough to make the workers not working at Wal-Mart better off, they’re enough to make up for the wage effect that Wal-Mart has.
Hindery: We now know more than just anecdotally about the painful comparison of Wal-Mart to Costco, and we do know about the company’s miserly health care plan. Thanks to a leaked memo, we actually know of its attempts to make the plan more miserly and more discriminatory.… There are great comparisons for Wal-Mart. At Costco, 82% of its employees receive a fulsome medical plan versus 48% at Wal-Mart that receive by every measure a miserly plan. We know that the effective coverage of the Wal-Mart plan is about 59%; at Costco, it’s 92%.
Furman: I called my paper “Wal-Mart: A Progressive Success Story.” Part of it is the progressive benefits that Wal-Mart has delivered. Wal-Mart, through no part of its own, largely or mostly because of the kind of people it employs that have lower skills in an economy with an increasingly high reward to skills and a low reward to lack of skills, doesn’t pay as much as most of us think it should pay. In the 1990s, we expanded the EITC, we raised the minimum wage, it used to be that when you went to work, you lost your Medicaid – we changed that, so you can keep your Medicaid when you work – these are progressive success stories. When people deride these as corporate welfare, it just baffles me. I’d like to try to convince you to drop the “corporate welfare,” and rather than attack the Wal-Mart employees for benefiting from these programs, celebrate it, and push to expand it.
Dube: In terms of job-based health coverage, you see about 53% coverage rate for large retailers, and it’s about 48% for Wal-Mart. One of the things that characterizes Wal-Mart’s plan is that they’re a lot less comprehensive than other retailers. If you look at Wal-Mart’s own tax filings, it actually pays 59% of healthcare costs for its workers and dependents. The number for retail overall is 77% for individual and 68% for families. Wal-Mart is providing less money on health care than other retailers. If you adjust for all that, the health costs per hour of work gap is about 37%. The evidence is pretty clear that there’s a large gap in health care.
In the leaked Wal-Mart memo, they surveyed their own workers, and they say that about 24% of workers are either uninsured or on Medicaid. In contrast, large retailers, 22.5%, not a big difference. When you look at dependents, the story is quite different. Wal-Mart has 46% of child dependents either uninsured or on Medicaid versus other large retailers at about 29%. Unfortunately, we don’t have the same numbers for adult dependents, because Susan Chambers’ memo did not include that figure.
The Wage Question
Hindery: We know about the extreme subsidization, in effect, of the company’s workers by state welfare plans. $86 million last year was spent in the state of California alone to give full-time Wal-Mart employees welfare benefits.
Dube: We need to account for the fact that Wal-Mart might be located in different areas than other retailers, so this weights each state by the state’s average wage by Wal-Mart’s share of employment in that state. I find about a 16% gap in average wages between Wal-Mart and large retailers. If you just look at retail overall, it’s 12%. If that’s in the same order of magnitude, it’s not gigantic, but it’s sizeable. If you compare in a cross-sectional sense Wal-Mart’s wages and benefits with other retailers, they’re lower overall.
Hindery: Costco pays its average employee $16 an hour, Wal-Mart sits there at $9.68. Wal-Mart gets out of bed by design in the morning, and they go to bed at night by design. It is a practice of the company that they have embraced.
Hindery: The business roundtable, which is a much esteemed aggregation of the big public company chief executives, in 1992 adopted formally a [definition] of corporate responsibility that extended to more than just shareholders. It identified a specific responsibility to employees, to society as a whole, and to the American economy. Last year, 2004, post-Enron, post-WorldCom, post this explosive growth of Wal-Mart, not, in some senses, all coincidence, the same roundtable formally disavowed corporate responsibility to multiple constituencies and instead codified a shareholders-only perspective. If corporate and CEO responsibility is indeed only to shareholders, then Wal-Mart, the world’s largest employer, should in fact only pay its employees the paltry $9.68 on average that it does. It should, in fact, have a medical plan for employees that is so miserly, that tens of thousands of its employees’ children are uninsured and only covered by Medicare, and it should, sadly, abandon Sam Walton’s very notable, very publicized, “buy-American” purchasing program to such a degree that Wal-Mart is standing alone as China’s 8th largest trading partner. Twenty-five years ago there was a clear mandate for businesses to consider and to make tradeoffs for all possible constituencies. Fifteen years ago, Wal-Mart abandoned those tradeoffs and began to focus solely on shareholders and on management interests.
Furman: Wal-Mart claims to care about the welfare of its employees. Any corporation is going to put 98% of its effort into maximizing its profits and share prices. If Wal-Mart cares about its employees, rather than lobbying against progressive issues, it would lobby for them, and it would work to expand these types of programs. If it were corporate welfare, it would help Wal-Mart’s profits, and they would have an interest in lobbying for increased EITC and food stamps, but I don’t think it’ll help their shareholders at all, but it’ll help their workers a lot, and that’s something they claim to care about.
Dube: One may be tempted to say if you account for $5 billion in wage loss and a greater amount in price savings, if Wal-Mart were a public policy, and we were choosing a public policy, we would say yes. But that’s not the relevant question. The relevant question is not “yes or no Wal-Mart,” the relevant question is “can Wal-Mart pay better wages and benefits?” If you take the large retail standard – that 16% compensation gap – if they were to provide just that, that would cost them less than 2% of sales. If they raised the price of an item that cost $1 by $0.02, that would cover the added costs. If their price gap is 25%, a 2% price increase does not change their competitive advantage. If 90% of the price gain or lower prices are due to legitimate reasons and 10% are due to lower wages and benefits, it’s pretty easy to fix that. A Republican board in Nassau County passed legislation that would require a provision of $3/hour for health care for big box retailers, and similar legislation was passed with a veto override in New York City. If you raise the minimum wage, the price of a burger might go up. I might look for a cheaper burger, but I might support a higher minimum wage – understanding that as community members, we think about the issue differently than we do as consumers.