Five years ago yesterday, Lehman Brothers collapsed, which dramatically exacerbated a recession that had begun the previous year.
In the five years since the Lehman collapse, Media Matters noted: “Corporate profits have ballooned along with the soaring stock market. CNNMoney reported in December 2012 that quarterly corporate profits set a new record, but it also noted that workers’ wages had “fallen to their lowest-ever share of GDP.” When Business Insider reported on the same phenomenon in April, profitability had continued to rise as wages continued to fall. Wage growth has largely been captured by the highest earners.”
According to commentary by economist Jared Bernstein, “A Brief Post on an Obvious Point: The Poor Didn’t Do It!” “there has been a sharp increase in the official poverty rate over the great recession.” This graph, Bernstein provides, is from the Census Bureau.
The irony is that the Right blames poverty on the impoverished. Bernstein’s response “Listen, elites: you want less people on food stamps? Fine…then stop screwing up the economy. Then we’ll talk. Until then—until we’re back around full employment, until you stop blowing bubbles, I really don’t want to hear from you about hammocks and the bad decisions of the poor. You want to talk job creation, infrastructure investment, skills training, mobility, opportunity—I’m all ears. Otherwise, quiet down and get to work.”
Democratic Mayor Vincent Gray, D.C., last week vetoed living wage legislation requiring big box retailers to pay a living wage of $12.50 an hour. The bill would have raised the average workers wage about to about $26,000 a year from $17,000, which is only a couple of thousand dollars a year over the poverty level for a family of four.
Gray defended his decision in a letter: “the measure was ‘not a true living-wage bill,’ because its effect would be limited to ‘a small fraction of the District’s workforce.’ He called the bill a ‘job-killer,’ citing threats from Wal-Mart and other retailers that they would not locate in the city if the bill becomes law.”
According to the Washington Post, “Gray’s quandary is playing out in many U.S. cities, where local leaders who generally sympathize with worker causes are also eager to lure jobs and commerce for their constituents. Retailers, most notably Wal-Mart, have placed an increasing focus on urban expansion, while unions and advocates for workers have pushed measures like the District’s ‘living wage’ bill as a valuable hedge against the proliferation of low-paying jobs.”
Despite protestations to the contrary, Gray did not do his homework. Firstly, while supporter’s of the bill claimed they did not target Walmart, Walmart has been looking to expand into urban markets because its earnings and sales are down. So, there is a likely hood that Gray’s concerns were misplaced, especially if city officials nationwide did their homework, and considered the much over looked research.
There have been a number of comparison studies that show retailers like Costco, which pays a living wage, significantly more profitable then Sam’s Club, Walmart’s, membership retailer. While it is not my intention to get into the specifics, The Harvard Business Review published a study that concluded that Costco generated an operating profit per hourly employee of nearly double that of Sam’s Club. “These figures challenge the common assumption that labor rates equal labor costs. Costco’s approach shows that when it comes to wages and benefits, a cost-leadership strategy need not be a race to the bottom.”
The model is there, but critics claim that Costco is a higher-end retailer—they have fewer skews, and command better prices, allowing them to choose to pay their employees more. Costco could clearly be more profitable if they paid their workers less. Costco has earned loyalty from its employees, as evidenced by its significantly lower turn-over rate than Sam’s Club, and it has policies in place that motivate employees to work harder, leading to greater customer loyalty and profitability.
Perhaps the most significant study, by the University of California, Berkeley Center for Labor Research and Education “LIVING WAGE POLICIES AND BIG-BOX RETAIL: HOW A HIGHER WAGE STANDARD WOULD IMPACT WALMART WORKERS AND SHOPPERS“, addresses the objections raised in the Costco model.
According to the study’s authors—“T/the growth of big box retail is a mixed blessing to local communities. There is strong evidence that jobs created by Walmart in metropolitan areas pay less and are less likely to offer benefits than those they replace. Controlling for differences in geographic location, Walmart workers earn an estimated 12.4 percent less than retail workers as a whole, and 14.5 percent less than workers in large retail in general. Several recent studies have found that the entry of Walmart into a county reduces both average and aggregate earnings of retail workers and reduces the share of retail workers with health coverage on the job. The impact is not only one of substitution of higher wage for lower wage retail jobs, but also a reduction in wages among competitors. As a result of lower compensation, Walmart workers make greater use of public health and welfare programs compared to retail workers as a whole, transferring costs to taxpayers.”
Significantly, Walmart’s entry into a metropolitan area drives down wages, increases the poverty level, hurting the poor and low-income consumers, while transferring social costs to the taxpayers.
The Berkeley study acknowledges claims that the Walmart model results in lower prices, which benefits the poor. “Emek Basker, cites a Pew Research Center Survey “to conclude that poorer consumers disproportionately benefit from Walmart’s lower prices. Jason Furman makes a similar argument, and further states that Walmart could not raise wages without raising prices which, he argues, would hurt poor and low-income consumers.”
In order to address these claims, the Berkeley researchers posed the following questions: “What if Walmart put in place a $12 per hour minimum wage for all its hourly employees in the U.S.? How much would it cost Walmart, and how much of the increase would benefit workers in poor and low-income families?
Their conclusion is astounding:
“We find that 41.4 percent of the pay increase would go to workers in families with total incomes below 200 percent of the federal poverty level (200 percent FPL). These poor and low-income workers could expect to earn an additional $1,670 to $6,500 (my emphasis) a year in income for each Walmart employee in the family, before taxes.”
Furthermore—“Even if Walmart were to pass 100 percent of the wage increase on to consumers, the average impact on a Walmart shopper would be quite small: 1.1 percent of prices, well below Walmart’s estimated savings to consumers. This works out to $0.46 per shopping trip or $12.49 per year (my emphasis) for the average consumer who spends approximately $1,187 per year at Walmart.”
It should be noted the authors indicate this is the most extreme estimate, since costs can be absorbed through increased productivity resulting from employee loyalty, or lower profit margins.
The bottom line—$12/year to you and me, means $12/hour to a Walmart employee!
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