Monthly Archives: April 2014

The Cost of Paying Wal-Mart Employees a Living Wage

Wal-Mart’s low wages apparently cost the US government $300,000,000 a year, and forcing them to raise wages would result in a 1% price increase across the board. Let’s assume those numbers weren’t much different in 2012.

US personal consumption expenditures in 2012 were $9,603.3 bn. The US population was somewhere between 312 and 315 million that year (use the “select a date” feature). Let’s say it was 313.5 million. So per capita consumption expenditures were $30,642.

Net US sales in 2011 were $264,000,000,000, so the actual per capita US spending at Wal-mart was more like $842. Under a 1% price increase, with completely inelastic demand and completely elastic supply, consumers would have spent $8.42 more a year. That sounds like almost nothing, and it might be small enough to justify assuming inelastic demand. But 1% of $264 billion is $2.64 billion and that’s still an order of magnitude more than we’d save.

Sort of. The government spends $300 million less and consumers pay $2.64 billion more, or $8.42 per person. There are about 115.2 million households in the US, so it comes out to about $23 per year per household. If the $300 m windfall is distributed evenly across households, the cost drops to about $20.50 a year. That number is probably small enough that the analysis doesn’t change much with elastic demand, even if goods sold at Wal-Mart are always inferior goods (in the economic sense).

So, is it worth it to force Wal-Mart to pay employees a higher wage? That depends on whether it’s worth $20.50 out of every household’s annual income. The lesson here is that big numbers are scary, small numbers sound trivial, even when they’re saying the same thing, and $20 always sounds like a lot of money.

Personally, I’d rather see that money come directly out of Wal-Mart’s $119.95 bn 2012 profit. I have no idea how to make that happen.


Update — an exchange from Facebook:

Friend 1: “Spending $2B to save $300M? Good deal. Haha.”

ssdecontrol: “That’s what I said too. But there’s a reason I went through the whole analysis.”

Friend 2: “But it was on Upworthy, so you must hate poor people if you don’t agree with what the article said.”

ssdecontrol: “Well maybe my point wasn’t clear… Would you pay $20 a year to give several thousand people a big raise? That’s a much bigger impact than you’d get from donating $20 to a food bank.”

Friend 1: “But that’s only is EVERYONE does it. If the food bank had an extra $2B…”


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A recession by any other name…

Edward Lambert writes that it might be a good idea to induce a recession if it means we can use it to fix the inequality problem that seems to have been caused by the previous one. And why not?

As I understand it, the 2008 recession provided various labor markets an opportunity to correct for an excess of relatively unproductive workers that were too hard to fire in good times. Again as I understand it, the reason why is was a bad thing and not a good thing is that it both flooded labor markets and caused a severe drop in aggregate demand on top of what had prompted companies to cut staff in the first place. Since the cuts were ever only intended to preserve profits, when aggregate production returned the economy was all set to charge right into a second Gilded Age.

This is why no one that actually matters (i.e. average people) seemed to notice the “recovery.” So how can anyone call it a recovery and keep a straight face? I think I’ve cringed at every macro-indicator-related newspaper article I’ve seen this year… and not because of the numbers being reported.

The point here is that policy makers and market makers do not fear recessions because they hurt common people, but because they hurt the bottom line. That’s fair and to be expected. What’s more is that the corporate bottom line typically does affect the people on the assembly line. That is, talking about GDP and bank lending is necessary, but only insofar as it matters for making a typical American’s life as good as it can get. But it seems that public discussion, which should at the end of the day only be about common people, stops short at the macro indicators and routinely fails to make the connection from business back to humans.

So then: who fears a second recession? The people who would lose something because of it. And who would those people be? I don’t have a good answer, but it’s probably not the people who think the last one never ended.

There’s research to be done here.

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