Should Walmart Pay Its Workers More?

Adam Ozimek, Contributor

The recent story about Walmart employees putting on a food drive for other Walmart employees has raised a lot of complaints about Walmart’s pay. The first most obvious point is that this is further proof of economic hardships that the working poor can face in this economy. Though I don’t think this is evidence that Walmart workers are starving. One account from the Cleveland Plains Dealer’s reporting certainly makes it seem like this is a story about temporary economic hardship:

Erica Reed, an associate at the Canton store, agrees. She said food drives have been going on at the store for a few years, so she questions why they are becoming an issue now. Reed said past food drives helped her cope with her own problems, not caused by low wages but because of losing $500 a month in child support when the father of her four children went to jail. She declined to give her salary.

The source of the hardship aside, there are a couple of things worth considering here that people often miss.

First, is that if you ask firms to pay above market wages do you have any way of knowing whether they will do this via lower employment? It’s true that there is no rule that a company must abide by the profit maximizing labor demand curve. In a competitive industry firms can choose firms can choose a non-profit maximizing Q as well as a non-profit maximizing P if it is paid for out of: lower shareholder returns, lower managerial pay, or higher consumer willingness to pay. These can be motivated by the desire to work or shop at places that pay high wages, and so also be fully efficient in the neoclassical sense.

But this is more likely to happen in closely held firms, like a small sole proprietorship in the form of local coffee shop. In large, dispersed, corporation like Walmart this is going to be extremely difficult. Do advocates truly expect to change the hearts of Walmart’s managers, shareholders, or low-income consumers? Where did all the liberal cynicism about corporate behavior go?  A more likely result is they will change their behavior in ways that minimizes the social stigma.

Importantly this will be difficult for advocates to monitor. While you can complain about and find out average wages, how will deviations from optimal quantity of employment be measured? Even if such deviations could be measured, how credible are threats to complain about less hiring? Note that while Costco does pay more than Walmart, they also have half as many employees per square foot and I have never seen anyone complain about this. No, I don’t think Walmart would find any such headlines very costly to ignore.

Finally, some might claim Walmart simply can’t hire less workers, but even if you hold the Costco example aside, isn’t one of the most common liberal complaints about Walmart that when they come to a town they lower retail worker employment? Most firms have some margins of adjustment when it comes to higher labor costs, and those that don’t tend to see higher wages translate into less employment via lower output, e.g. locations going out of business.

A second point I hear is, wouldn’t I praise it if Walmart just announced, without pressure, to pay it’s workers on it’s own? But Walmart giving raises because this is the profit maximizing labor market outcome is different than Walmart giving raises because of a bad PR campaign. In the former case you have wages driven up either by improving productivity at Walmart or at other buyers of low-skilled labor. This suggests the higher wages are not coming at the expense of less employment. In the latter case, as I described above, this is not true.

Some may point to lower turnover as a source of cost savings from higher wages, but remember this story began with tales of unforseen economic hardship. The ease of quickly finding a job is an important in these circumstances, and the economy is already suffering from what looks like too low of labor market churn.

Overall, a social stigma against hiring low-productivity workers and paying them their market wage is not the same thing as higher productivity. High wages are good when they don’t come by mechanisms that risk labor surpluses.

It’s important to highlight the plight of the working poor. At a time when food stamps are being cut and some on the right attempt to argue against the basic idea of a safety net it is useful to show what actual need looks like in this country, and that many who work hard still encounter real economic hardship. So by all means, lets talk about increasing the EITC, making a better and more robust safety net, and ways to improve the welfare of low-income people in this country. But let’s not pretend that a huge percentage of the context in which this story is being discussed isn’t that it is Walmart’s duty to raise the wages above the current market level. I’m happy to talk about economic hardship and things to do about it, but let’s not ignore the conversation most people are actually having and the bad ideas actually being proposed.