Should Walmart Pay a Living Wage?

Protesters in CA (Don Barrett)

This year’s Black Friday extravaganza was marked by a set of “strikes” at Walmart stores across the country.

A union-backed group, OUR Walmart, alleged 1,000 protests were held in 46 states across the country. However, calling the protests “strikes” is misleading, due to the fact that the protests were almost entirely made up of non-employees.

Estimates of employee participation in the protests are anywhere from a “couple dozen” to a “couple hundred” employees nationally. Even accepting the highest of estimates, this would suggest a .0002% employee participation rate. In essence, 1 out of every 4 or 5,000 employees was involved, at a maximum.

Walmart spokesman Dan Fogleman said the number of employees who missed shifts over the two days was 60% lower than last year.

Although the protests’ influence has been largely exaggerated, an interesting question has been raised for consideration – should we advocate a “living wage” for employees?

On the surface, the call for a “living wage” seems compassionate. Walmart makes upwards of $16 billion a year, surely it could afford to pay its workers $12/hour! Calculations show that the cost passed on to consumers would be minor, only about $15/year.

However, many facts invite us to consider again the merits of a “living wage” argument.

In response to similar protests at his university, Harvard professor and economist Greg Mankiw lays out the case for workers against a “living wage”:

“Should extra money be spent hiring more professors to reduce class sizes, or should it be spent hiring more janitors to vacuum classrooms more often? It’s a judgment call. If the cost of unskilled labor rises, Harvard faces a new set of trade-offs. Over time, it will respond by hiring fewer of those workers.”

Mankiw demonstrates, in the long run, how a “living wage” would attract more competition from workers who were more highly skilled, effectively taking jobs from the people at the bottom of the economic ladder.

Economists from the American Enterprise Institute demonstrate how supporting a “living wage” may have good intentions, but will make poverty worse:

“Some lucky workers will earn more money after a minimum wage increase. But because low-skill workers will be more expensive to employ than they were before, the increase will cause many workers to have their hours cut and to lose their jobs… Among people who do work, only a tiny fraction of them are employed in minimum wage jobs, and many of those are teenagers from middle-class families.”

We should also refrain from vilifying Walmart without looking at their “always low prices” and their macroeconomic effects. Dr. Charles North, Associate Professor of Economics here at Baylor University, offers an enlightening perspective in his book, Good Intentions:

“Wal-Mart’s prices affect more than just its customers’ pocketbooks. They also hold down prices across the entire U.S. economy… These lower prices find their way into the most popular official measure of price inflation in the United States – the Consumer Price Index (CPI).”

A “living wage” may sound like a compassionate plan to advocate, but good intentions often have unintended consequences.

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6 responses to “Should Walmart Pay a Living Wage?

  1. Something has always bothered me about forcing a company to pay a certain wage. It seems inherently wrong for any governing body to arbitrarily set a value to someones work.

    We should let the market decide. In the long haul if Walmart pays poor wages they have bad employees which in turn provide bad service which then leads to people no longer shopping there. That hurts their bottom line. Walmart then sees the problem, raises wages to attract better people and viola. The market works.

    The living wage would mean that someone stocking shelves has the same work value as a skilled laborer building houses or fixing cars. That doesn’t make sense. The market place is all about incentive – if you take that away the market is broken.

    • Couldn’t agree more! Even for the people that do think we should be allowed to force Walmart to pay a certain wage, you can tell them that Walmart is actually in the middle of retail pay on average. Other stores pay worse and somehow don’t get criticized near as much.

      Glad you visited my blog as well! I’m sure we’ll keep in touch.

  2. Let’s not forget the most important reason that increasing the minimum wage is a bad idea – it increases unemployment, particularly among the young and low skilled. As wages increase, the demand for labor decreases. This is because as your costs go up, your prices go up. As prices go up, demand for your products goes down. As demand for your products goes down, you need fewer employees.

    Wages are equal to the marginal product of labor. Firms will hire until the marginal revenue from one more employee is less than the cost of that employee. The only way to increase wages without increasing unemployment is to increase output per employee.

  3. Let’s stick with $15 more per year and compassion. Lots of conjecture on the one side; I’m guessing there is an equal amount of conjecture among experts on the other side as well. If I make more, I may spend more; this is especially true for those at the bottom….. Economy improves…… Increased wages offset by improved revenue.

    • It’s not about the 15$ per year, that’s the point. The “consumer case” of higher prices doesn’t hold up, but the “worker case” of compassion for those who get laid off does.

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