Tuesday, January 17, 2006

Wal Mart Defended

November 29, 2005
Op-Ed Columnist NYTimes
The Good Goliath

Once upon a time, social activists decried the plight of workers in company towns whose paychecks vanished each week because they were being gouged by the local stores. Urban politicians, angered by the high prices charged at grocery stores in the inner city, offered subsidies to attract chain stores that would make food more affordable for the poor.

Then Wal-Mart came along, giving small-town workers an alternative to the local oligopoly and offering urbanites food at the same low prices charged in the suburbs. Now the activists and politicians have a new cause: Say No to Wal-Mart! Stop it before it discounts again!

This new crusade is especially puzzling in light of the current consensus among poverty experts. I recently moderated what I expected to be a liberal-conservative debate on the topic that was sponsored by The New York Times Neediest Cases Fund. It was a fascinating discussion - but as hard as I tried to provoke controversy, there wasn't much of a fight.

Both sides praised welfare reform and said the government should keep pushing people off the rolls and into jobs. And because many of these people are unskilled workers who command less than $10 per hour, both sides agreed that the government should make work worthwhile by supplementing their income through more income tax credits and other programs.

From that perspective, Wal-Mart has been one of the most successful antipoverty programs in America. It provides entry-level jobs that unskilled workers badly want - there are often 5 or 10 applicants for each position at a new store.

Critics say Wal-Mart's pay, $9.68 per hour on average, is too low and depresses local retail wages when a new store opens. That effect is debatable, but even if wages do go down slightly, these workers still end up with more disposable income, as Jason Furman, a visiting professor at New York University, concludes in a paper titled "Wal-Mart: A Progressive Success Story."

Furman, a former economic adviser in the Clinton administration and the Kerry presidential campaign, notes that the possible decline in wages is minuscule compared with what the typical family saves by shopping at
Wal-Mart: nearly $800 per year on groceries alone, a savings that's especially valuable to the many low-income shoppers at Wal-Mart.

The average income of shoppers at Wal-Mart is $35,000, compared with $50,000 at Target and $74,000 at Costco. Costco is touted as the virtuous alternative to Wal-Mart because it pays better wages, but it needs to because it requires higher-skilled workers to sell higher-end products to its more affluent customers.

Wal-Mart is often denounced for getting "corporate welfare" because some of its employees rely on Medicaid for health care and on other government aid.
But so do some employees at other companies or at government institutions like public schools. Wal-Mart offers health benefits that are generally comparable to what other retailers offer.

Its size makes it an easy target for enemies, like the Maryland legislators who passed a bill that would apparently affect only one company in the
state: Wal-Mart. The legislators in Maryland (and other states) want to force Wal-Mart to either increase its spending on health care benefits or to make payments to the state's health program for the poor.

But suppose Wal-Mart were forced to give health coverage to all of its part-time employees. To remain competitive, Wal-Mart would probably cut the cash wages of the workers to compensate for the additional health benefits.
The cut in take-home pay would be particularly hard on the many part-timers who don't need the benefits because they're already covered through their spouses' or other insurance.

Some of Wal-Mart's critics prefer to imagine that Wal-Mart wouldn't have to cut wages - that it could get away with raising prices a little to cover the extra health care costs. But that would force Wal-Mart's shoppers to cover costs previously paid by the government out of revenues coming largely from income taxes, which are paid disproportionately by the affluent. Instead, Wal-Mart's low-income shoppers would, in effect, pay a regressive new sales tax.

It's easy to understand the motives of some of Wal-Mart's enemies. Local merchants don't want to match its prices. Labor leaders know that they'll lose members and dues if unionized stores suffer. But why would anyone who claims to be fighting for social justice be so determined to take money out of the pockets of the poor?

No comments: