A glaring omission

I made three shameful mistakes in my Wal-Mart wages post:

  1. The $300 m per year number is for Ohio alone. The total figure for the whole U.S. is actually $13 bn.
  2. The actual price increase is 1.4%, not 1%.
  3. I forgot about the increased wealth of Wal-Mart employees, in the form of increased wages.

Start with number 2. The total cost to consumers is in fact $3.69 bn and not not $2.64 bn. The per-capita cost changes from $8.42 to $11.77 , and the per-household cost changes from $23 to $32. The per-household net cost (including the $300 m tax windfall) is now $29.40 rather than $20.50.

Now for number 1. $300 m just the tax windfall from one state; the actual tax windfall is $13 bn. Each household gets back $112.85 from the government, so the per-household net cost becomes -$80.85. That is, every household is better off by $80.85. So maybe the government won’t just refund a chunk of everyone’s taxes. But the arithmetic is irrefutable: $3.69 bn is a lot less than $13 bn.

Number 3. The original video (here, for reference) seems to assume that the cost of the wage increase is passed fully and directly onto consumers, yielding the 1.4% price increase. This is just a transfer. Every household is $32 poorer this year, but the average Food-Stamp-receiving Wal-Mart employee gets a raise of $4.82 an hour. So each household is on the hook for about 6.64 hours of work for one employee, out of that employee’s 2,000 hours worked throughout the year. That’s like picking a random employee on Food Stamps and buying him a week’s worth of lunch at Subway (btw the Wal-Mart in Rochester has a Subway inside it). Oh and by the way, your check for $112.85 is in the mail.

Yeah, you could re-run the analysis with income and substitution effects for demand. Unless Wal-Mart sales are the ultimate Giffen good, it’s only going to make the cost to individual households lower, and the difference will come out of Wal-Mart’s profit. I think most of the people I know would agree there’s some karmic justice in that, and if you wait for Wal-Mart to raise their wages voluntarily it means you missed your chance. Either way, on a pure cost-benefit basis this policy is a no-brainer.


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  1. Pingback: Lots of bad ideas | Lots of Bad Ideas

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