The irony of this story is so yummy that I find it hard to believe it’s actually true. The Las Vegas Weekly is reporting that the United Food and Commercial Workers (UFCW) union is hiring temporary workers for $6 per hour with no benefits to stand in a blacktopped Las Vegas Wal-Mart parking lot protesting the working conditions inside! This is coming from a union whose motto is, “A Voice for Working America.” You should read the whole thing, but some of the economic fallacies are so obvious and so commonly committed that I feel compelled to address them here. It might be easier to invite any and all UFCW executives to take my labor economics class, for all they need to do is understand what we talk about in the first two weeks of class to avoid committing these damaging errors. Let’s go point by point:
The union accuses Wal-Mart of dragging down wages and working conditions for other grocery-store workers across the nation. “Whether you work or shop at Wal-Mart, the giant retailer’s employment practices affect your wages. Wal-Mart leads the race to the bottom in wages and health-care,” says the UFCW’s website.
Compare a market for shelf-stockers or cashiers in a world with and without Wal-Mart. In a world without Wal-Mart, there simply are fewer employment opportunities for workers with the skills necessary and the desires to hold these jobs. Once Wal-Mart comes to town, the demand for these low skilled workers increases. For every given level of wages paid by “other grocery stores” in your town, firms want to hire more grocery store workers – that is because the number of cashiers wanted by all firms in the town exceeds the number of people that want to work as cashiers at the current wage (and benefit) rates. Assuming the skills and abilities of all grocery store clerks are identical, Wal-Mart would have to pay higher wages in order to attract a workforce to its new store.
I envision two objections. First, is that the average wages of Wal-Mart workers are lower than the average wages of (non-unionized?) grocery store workers. This may be true, but then it must be the case that either current grocery store owners are paying above market wages (and the competitive lure of economic profits would easily force them to lower wages or go out of business by refusing to do so) or that Wal-Mart is hiring a workforce that is not perfectly substitutable for the grocery store workforce. In other words, Wal-Mart is hiring workers that were either not willing or able to work as clerks in traditional grocery stores. I prefer the latter explanation as I find it hard to believe that all people would leave a pile of twenty-dollar bills laying on an abandoned street corner while out for their morning constitutional. If the latter explanation is true, then Wal-Mart has in fact expanded employment opportunities for low-skilled workers in your town. Couple this analysis with the fact that these workers and Wal-Mart have voluntarily entered into the employment relationship and you have very compelling evidence that low-wage workers are made better off by Wal-Mart’s presence.
A second objection would be one that demonstrates a lack of appreciation for what Joseph Schumpeter called the process of “creative destruction.” This claim would be that Wal-Mart has run its competition out of business, leaving a swath of unemployed grocery clerks in its wake. We should applaud Wal-Mart if it is able to deliver goods and services more cost effectively than its competitors – that is the essence of doing business and it has been going on for centuries. Should we demonize IBM and Microsoft for making word processing possible on our desktops? After all, think of all the typewriter repair men, factory workers, retailers and wholesalers that have been put out of business because of it? Even if Wal-Mart’s efficiency results in the loss of some grocery clerk jobs, Wal-Mart must compete with every single merchant in town for workers with similar skills and I find it implausible that grocery clerks make up a substantial share of this workforce – and thereby implausible that Wal-Mart forces wages downward.
Another claim in the above paragraph is even more mind-blowingly wrong. It says that even if I only shop at Wal-Mart (and am not an employee), my wages are negatively affected. Malarchy! In the crudest sense, Wal-Mart will help increase the purchasing power of my nominal wages by ensuring I can buy goods (and even some services) at the lowest possible prices. How does that make me poorer? In a slightly more sophisticated sense, if Wal-Mart caused a race-to-the bottom in wages and caused them to fall below competitive levels, then if I were even a half-witted business man I could raise wages, get all the good workers and compete Wal-Mart under the bus. I don’t see that happening. How else could they be hurting your wages if you are not in the same labor market as Wal-Mart’s current exploited workforce? My employer pays me exactly what I am worth to it – in other words I am compensated for my ability to produce services that are demanded by my employer’s customers – namely I teach economics classes. There is very little that Wal-Mart’s employment practices can do that affect my marginal productivity at my employer.
“As the largest corporation in the world, Wal-Mart has a responsibility to the people who built it. Wal-Mart jobs offer low pay, inadequate and unaffordable healthcare, and off the clock work.”
Wal-Mart has no more or less responsibility than anyone or anything else. Every business is successful because they are able to satisfy the insatiable wants of its consumers. Those companies that are unable to do this are no longer in existence . As I argued above, Wal-Mart offers the compensation package that emerges from the millions of transactions that occur daily between low-skilled workers and their actual and potential employers. If Wal-Mart is acting so transparently irresponsibly, then consumers would not shop there, investors would not buy the stock and workers certainly would not work there. As is evidenced from the article, there are clearly no dramatic signs of worker discontent or revolution on the horizon for Wal-Mart. As one picketer commented, “We’re sacrificing for the people who work in there, and they don’t even know it.”
This is on the UFCW’s website as an indictment of Wal-Mart! Nearly 50% of all Wal-Mart employees receive employer provided health care benefits. Family health coverage costs a whopping $218 per month and deductibles range from $350 to the dastardly high of $3,000. And according to Wal-Mart’s website for the least comprehensive medical coverage, workers pay from $17.50 for individual coverage and $70.50 for family coverage biweekly. I wished my employer offered benefits like this. My family health coverage costs me well over $300 per month. Centre contributes at least that much more (my guess is probably nearly 100% more) toward my health benefits as well, which should be counted as part of my total compensation package. Health benefits are a cost just like any other piece of compensation. Workers are paid total compensation packages that are determined by how productive workers are as well as how willing workers are. And, what is exactly is inadequate healthcare anyway? Wal-Mart’s plan insures workers for catastrophic illnesses. That seems adequate. I don’t believe their plan offers free Advil to participants – is this inadequate? I don’t think the plan covers laser eye surgery either – is that inadequate. The obvious point is the concept of “adequate” health care is highly abstruse.
I am sure that the UFCW means that anything that we must pay for with our hard work is not adequate. UFCW organizer readily admits this, “The Neighborhood Markets are the same as a supermarket like Albertson’s or Safeway. Some supermarkets start (pay) at $7 an hour, but they do get benefits. These people (employees at Wal-Mart) have to pay for theirs.” I don’t know about you, but I surely don’t expect to receive goods and services for nothing in exchange, so why is Wal-Mart expected to provide free goodies to its employees? And while we’re on the topic of Albertsons – it occurs to me that this store may offer some different types of products and serve different types of customers than Wal-Mart does. Forcing Wal-Mart to pay higher wages because Albertson’s does is akin to forcing Centre to pay me more because Harvard pays its professors more.
Here’s my favorite passage:
Rivera removes his watch to show the dark tan his arm has gotten working in the sun; he talks about how he takes three buses to get to this work site on weekends; it takes two hours to get there and two hours to get home-a nine-hour day including that transportation for a gross pay of $35. “I asked him (union organizer Hornbrook), I said, ‘How come we’re working here for $6 an hour? I need you to help us find a better job. I want information on the union,'” Rivera said. He was told, he says, to secure his own job with a grocery store, and then the union would help him to be sure the store paid him appropriate wages.
Wow! The labor market practices of the unions themselves are constrained by the twin realities and productivity and workers’ willingness to supply their time and effort. Why can’t the UFCW pay these picketers $12.00 an hour and give them benefits? Well, they’re only temporary, picketing isn’t a career, it’s an in-between job, yada yada yada. It’s simple – the picketers are not worth that much to the UFCW and if they were to offer $12.00 an hour to hold up signs they would be inundated with requests for those positions. They were able to fill up all the picketing positions they wanted at a wage of $6.00 per hour. But, hey, unions are around to help workers. Since they are so concerned, why not just take all of the low-skilled workers from Wal-Mart and employ them at the UFCW for $12.00 per hour?
Holbrook all but acknowledges that the UFCW “can’t afford” to hire these workers full-time and if they do they certainly “can’t afford” to pay them the high wages they deem to be fair. No business is immune to this. So the solution for Hornbrook and the other miscreants like him is to tell people to go slough it on their own to find jobs, and then the union will step in and save them by forcing other companies to pay compensation packages beyond what they are able to pay. Then, here’s the big kicker – hopefully the grateful employees (never mind those that lose their jobs or can’t find them) will send a check to the union each month in order to ensure that they are protected forever by the warm arms of the union. This will help to ensure that the union can pay its faithful workforce sufficiently comfortable compensation packages without having to produce one bit of output that is of any use to society at large.
And here from the union’s website:
“Every person working hard for a living earns the right to a decent wage, affordable health care and a voice on the job. But Wal-Mart’s greed provides other companies a license to chip away at the rights of working America , influencing everything from wages to working conditions.”
In other words, while most hard working folks earn their livings by producing goods and services that are valued by the rest of society, Hornbrook and his cronies “earn” their livings parasitically, on the backs of low-skilled and other workers who buy into the “demagogued” myth that they are entitled to financial rewards without having to earn them and into the bigger myth that were it not for the unions, they would be cast into the depths of forever working effective 9 hour days on sun-scorched hot pavement in 104 degree heat for less than $35.00 per day. The unions are not responsible for the incredible improvements in our living conditions we have experienced over the past 150 years, nor will they be responsible for future improvements in our living conditions. Did unions bring us electricity, wireless communications devices, durable clothing, household appliances, better building materials, sanitation systems, television, the internet, the variety of foods available to us today, parks, skis, tennis rackets, football games, etc.? Think hard about how these wonderful things came to pass and how they have improved our condition.
Working hard does not entitle people to anything. I worked really hard last summer digging a giant trench in my yard – how come I didn’t get a decent wage or cheap health care for doing it? Wal-Mart is providing low-skilled workers an opportunity to work that would otherwise not be available to them. In turn, these workers have the opportunity to remain at Wal-Mart and acquire skills that will allow them to become senior associates and managers and earn higher wages. Some workers may even use this job experience as a stepping stone to a better job or may be using it to supplement the family’s income. Furthermore, Wal-Mart offers an enormous variety of products and services in one location and for low prices – helping to further enrich all of the consumers who choose to patronize it.
