Republished from Forbes
During the 1950s peak of America’s post-war prosperity, Detroit was our wealthiest city, General Motors our biggest employer, and GM CEO “Engine Charlie” Wilson delivered the famously misquoted claim that “what was good for our country was good for General Motors, and vice-versa.”
Times have changed. These days retail giant Wal-Mart is our largest corporation, employing 1 percent of all American workers, but rather than being praised for its achievement is routinely vilified by political activists and the media. In its defense, the company has released studies claiming that its low price approach to consumer goods annually saves American shoppers vast sums of money, with much of those savings going to families of lowest income, and although specific figures have been disputed, the general point is conceded. But if Wal-Mart has been such a great business success and saves its customers at least ten or twenty billion dollars each year, why does it continue to attract such widespread hostility?
The main charge leveled against Wal-Mart is that its wages are too low, and critics have a point. Berkeley’s Labor Research Center has estimated that almost a million of Wal-Mart’s American workers earn less than $12 in hourly pay, with 300,000 averaging only $8.75. Surviving on such low incomes is difficult in America, and a few months ago a local store’s campaign to persuade Wal-Mart workers to donate food to other Wal-Mart workers became a national media scandal. Each year Wal-Mart’s struggling employees receive billions of dollars in government social welfare benefits, with the costs borne by the general taxpayer. Just as General Motors was the national symbol of America’s high-wage manufacturing economy, Wal-Mart has come to represent our low-wage service sector, which many Americans equate with the decline of our middle class society.
So why doesn’t Wal-Mart just improve its public image by raising its wages? Those same Berkeley researchers estimated that the company could boost its pay to a minimum of $12 per hour and cover the additional expense by a one-time price hike of just 1.1%, costing the average Wal-Mart shopper only an extra $12.50 per year. Surely if hundreds of thousands of the company’s lowest-wage employees were given immediate raises of one-third or more, they’d sing Wal-Mart’s praises, while performing their jobs with greater diligence and lower turn-over. One hundred years ago, Henry Ford doubled the wages of his assembly-line workers, providing them incomes high enough to buy the cars they themselves produced and helping to create the great American middle class of the twentieth century. Wal-Mart workers are also Wal-Mart shoppers, and many of the extra dollars they might receive would go right back to the company that paid them.
The difference is that while Ford’s industrial breakthroughs had given his company a near-monopoly on mass-market automobiles, Wal-Mart’s absolutely rock-bottom prices represent its chief selling point, allowing even a small markup to be easily exploited by the company’s able competitors. A general increase in wages and prices across the entire retail sector might greatly benefit companies and workers alike, but any attempt at organizing such collective corporate action would obviously run afoul of America’s strict anti-trust laws.
Fortunately, what some government restrictions prohibit, other government regulations might also enable. Consider the consequences of raising the minimum wage to $12 per hour.
Not only would Wal-Mart and its competitors suddenly be able to do what was best for both shareholders and employees, but the same large hike in wages and disposable income would also go to tens of millions of other low-wage American workers. McDonald’s might need to raise the price of its cheeseburgers by a dime and American-grown agricultural products would cost 2% more on the grocery shelves, but some $150 billion of extra income would flow each year to the sort of households that spend every dollar they earn, producing an enormous, ongoing economic stimulus program, a stimulus program funded entirely by the private sector. And a large share of those tens of billions in additional disposable income would go toward boosting the revenues at Wal-Mart, McDonald’s, and the other corporations that employ those same workers.
Corporate executives have sometimes recognized these facts over the years. In 2006, Wal-Mart CEO Lee Scott testified before Congress in favor of a large hike in the minimum wage, arguing that even then Wal-Mart shoppers were becoming too poor to shop at Wal-Mart.
In recent years, the growing impoverishment of non-wealthy Americans has become a major drag on the consumer spending that drives our economy, and a hefty rise in wages and disposable income would be a tonic for our continuing economic stagnation.
Economists have traditionally feared that a much higher minimum wage might cost workers their jobs, but today the vast majority of low-wage Americans are employed in the non-tradeable service sector, usually involving personal contact. These jobs are completely insulated from foreign competition and also very difficult and expensive to automate. Such workers would keep their jobs, but their incomes would rise by 30 or 40 percent, and most companies would cover the higher costs by a one-time price hike averaging much less than 1% across all our goods and services.
The American taxpayer would also be a huge beneficiary. Each year, over $250 billion in social welfare spending goes to working-poor households via government programs such as Food Stamps, EITC checks, and Medicaid. As millions of those workers became much less poor, they would automatically lose their eligibility for anti-poverty assistance, saving taxpayers many tens of billions of dollars each year. Government programs often function as very leaky buckets, with a substantial fraction of the money spent never reaching its supposed beneficiaries. But wages paid by an employer go straight to the recipient, except for the portion withheld in government taxes.
Transforming millions of net tax recipients into net tax payers would also have a salutary impact upon American politics. During the last election campaign, Republican Mitt Romney was vilified for pointing out that 47% of all Americans paid no income taxes and hence were deaf to his message of reducing wasteful government spending and cutting taxes. But a $12 minimum wage might shrink that non-taxpaying total by ten or fifteen percentage points, giving millions of additional voters a direct stake in demanding government efficiency.
Wal-Mart has become a national symbol of the poverty wages paid to millions of ordinary working Americans, who can only survive because of their taxpayer-funded social welfare subsidies. But Wal-Mart is actually a great American success story and those economic problems are merely a consequence of the mistaken government policies of the last forty years, which have allowed a collapse in the real value of the minimum wage despite the simultaneous doubling of American labor productivity.
Boosting the minimum wage to $12 would be good for Wal-Mart workers, Wal-Mart customers, and Wal-Mart shareholders. And what’s good for Wal-Mart is good for America.