Tuesday, March 10, 2015

Walmart's Wages

Perhaps it's not surprising that The Militant is the only Trotskyist paper I follow that bothered to cover the news about Walmart raising it's wages. An article by Glova Scott states the facts clearly in her lede.
The Feb. 19 announcement that Walmart will increase starting wages to $9 an hour in April and for current “associates” to $10 next February puts wind in the sails of all of us fighting for better pay, a 40-hour workweek, union representation and dignity.
The Militant has long done a superb job of covering labor market issues, for which I commend them. I'm not sure that makes them more "revolutionary" (whatever that means), but it does make the paper more interesting for me to read.

Ms. Scott's explanation for Walmart's new found generosity is predictable. She credits the "...years of protests, including recent actions by OUR Walmart, backed by the United Food and Commercial Workers union." Wages are set from the bottom up, she maintains, and through struggle Walmart workers have done us all a favor by forcing more pennies from their employer.

I find this story unlikely. Very few OUR Walmart participants work at Walmart, and likely they're not even Walmart customers. Why Walmart should raise wages by a billion dollars on their account defeats reason. OUR Walmart is an irrelevant nuisance.

Some argue (not Ms. Scott) that Walmart is anticipating raises in the minimum wage, preempting the event. This might be more of a factor, but Walmart's core business is in low-wage states away from the coasts. So this does not look to be an important criterion--though surely more significant than OUR Walmart. (h/t Megan McArdle)

The CNBC crowd has yet another explanation, namely the imminent return of inflation. Their theory is that labor markets are becoming increasingly competitive, and therefore wages are being bid up. When this happens the Fed will inevitably raise interest rates to prevent a price spiral. And we should all quiver in our boots. Ms. Scott mentions this theory in passing, mostly as a reason why OUR Walmart's campaign was now successful.

I find the CNBC theory implausible. Labor market participation is still very low, and a relatively large number of workers are employed only part time. There remains a lot of slack in the labor market writ large, though for skilled workers it is much tighter than it used to be. Still, I don't think inflation is anywhere on the horizon. Everything from a glut of oil, to the rise of the dollar, to slowing economies elsewhere in the world argues against it. I see no evidence of wages generally being bid up anytime soon.

I actually think Megan McArdle has hit on the truth. She summarizes her case nicely in her closing paragraph.
I’ve written before that a company’s labor model is its business model, and Wal-Mart is no exception. If Wal-Mart is making a radical shift in one, it’s likely that you can expect at least a modest change in the other.
That is, Walmart doesn't need more employees, but rather different employees. It wants skilled workers who are willing to commit to the company for the long term. Walmart is by far the largest grocery store chain in the country. As Ms. McArdle points out, you can't run a produce or meat department with casual labor. When we used to live in Indiana we bought most of our groceries at Walmart. But since moving to New York we've found Walmart completely unsatisfactory. Shoddy merchandise, empty shelves, and terrible service made shopping in the store unpleasant. I haven't been in the store for several years now.

Walmart caught a lot of flak for its poor performance, and it's earnings have stagnated accordingly. You can't fix this without the right kind of workforce. The wage hike is the start of a new business model.

There are other clues. Fortune reports that Walmart is building a career path for its employees.
The company is also piloting a training program to help employees move out of entry-level positions and potentially make $15 an hour and more with increased responsibilities.
I'll take issue with one statement from Ms. McArdle. She says
Wal-Mart’s business model is, as my old entrepreneurship professor used to say, “Big Stores in Small Towns.” Its core value proposition is, as the slogan goes, “everyday low prices.” Its core demographic is the lower middle class. For a long time, this was a recipe for rapid growth. But the heartland is pretty much full of Wal-Marts, the lower middle class is struggling harder and spending less, and there’s more competition on the “low price” front than there used to be.
I'm not sure the lower middle class is struggling as much she says. Contrary to popular opinion, everybody in this country is getting richer. While incomes for lower middle class households might be decreasing, it's only because there are fewer people per household. Fewer people means money goes around further, and even those shoppers have more discretionary income. Walmart has competition from Target and TJMaxx. Accordingly, it has to move upscale.

Upgrading its workforce means that some current Walmart employees just won't cut it. Indeed, it is likely that they'll be hiring fewer employees overall. The folks most likely to be let go are those with the lowest skills. They may be forced out of the labor market.

John Tamny grapples with this problem in a recent piece.
About those choices, it once again needs stressing that the employment possibilities today aren't the same as they were in the mid ‘80s, late ‘90s, or as recently as 2003. Work opportunities have surely shrunk since then, and were particularly dire back in 2008-2009. There's no flippancy here despite a more unconventional attempt to explain unemployment. The main reason the latter remains high is due to government barriers to growth that have reduced the number of quality of jobs on offer.
I don't think he appreciates the difficulty. The redundant Walmart workers will join my neighbor's son, a man in his early 30s who has never had a job. He clearly has a below average IQ (though not retarded). I don't think he's ever been in serious trouble with the law. Obviously he made bad decisions back when he was 18 or 19 (drugs). You can blame him for that if you want, not that it helps any now.

How is he ever going to be employed? He'd need $2/hour just to cover the expense of working (gas, clothes, laundry, lunch). There's no way his labor is worth that much. So all he does is live off his mother's social security check.

There are lots and lots of former Walmart workers who are going to join him. So I think Mr. Tamny underestimates the barriers to full employment. Short of massive government subsidies these people will never find jobs.

The welfare state, far from shrinking, is likely going to grow. I see no way around that.

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