Richard K. Vedder, Ken Jacobs
- Introductory Remarks by David Theroux
- Opening Presentation by Richard Vedder, Senior Fellow, The Independent Institute; Distinguished Professor of Economics, Ohio University
- Opening Presentation by Ken Jacobs, Chair, U.C. Berkeley Labor Center
- Rebuttal by Richard Vedder
- Rebuttal by Ken Jacobs
- Questions and Answers
- Post Debate Notes
Good evening ladies and gentleman, my name is David Theroux. Im the President of the Independent Institute, and I want to welcome you to our program this evening. As you know, its entitled Is Walmart Good or Bad for America? Were delighted to have two leading experts who will be debating the issues involved in this controversy.
For those of you who are new to the Institute, hopefully you got a packed when you registered. Youll find information about our publications, including our books. This is our journal, The Independent Review, a quarterly journal edited by Robert Higgs. Youll also find information about upcoming events.
One of the inserts in your packet is about the summer seminars we operate for high school and college students called Summer Seminars for Students. And youre welcome to encourage young people to attend. We have two week-long seminars this year, and youll see the dates in your packet.
The Institutes program is a bit different from most so-called public-policy institutes. Were really more interested in getting to the roots of issues based on current and proposed policies, as opposed to the normal kind of thing that passes for debate in Sacramento and Washington. And thats one of the reasons why were delighted to have our speakers this evening.
One last thing Ill mention. In your packets is a flier about an earlier book of ours. Thats this one here, called Out of Work. This is the second edition from New York University Press. One of our speakers, Professor Vedder, was one of the co-authors of that. Its a book on the issue of unemployment. Its a systematic look at that problem throughout the 20th century in the United States, and virtually every kind of government policy that affects that issue. So I encourage you to look at that, because thats certainly part of the questions that were going to be looking at this evening.
As everyone here knows, the entry and operations of big-box retailers has become a major controversy in various communities. But in the history of economic development, many of the issues being debated are really not new ones. Instead, the same questions were raised when people first began to specialize from what were considered changes that were different from the norm many years ago.
Once upon a time, most communities were based on a subsistence, self-reliant kind of existence. That essentially changed into economies based on division of labor, where skills were divided up as far as production and trade, in both farming and manufacturing. The previous self-sufficient starvation of subsistence, essentially, was replaced by markets of craftspeople, who would sell their products directly to consumers.
Craftspeople then found that specialized vendors could expand their markets, their sales reach, and would enable them to cut costs and specialize further. Specialty vendors in turn reduced their cost and risk by becoming middlemen and women for dry goods and other general stores, which was a significant innovation in the history of retailing. Which then, in turn, reduced the time and cost of shopping for consumers.
General stores eventually faced the economies of scale from dime stores and department stores, like Sears and Macys. And supermarkets, like Safeway and Luckys. The shopping center arose after World War II, and with new technologies and techniques, the discount department store, or big-box stores, came into being via Costco, Walmart, Target, K-Mart and others.
The most successful of these big-box retailers is, of course, Walmart stores, which was founded in 1962 by Sam Walton, who incidentally, started his career in retailing by working as a clerk in a penny store in Des Moines, Iowa. So to set the stage of this nights debate, here are some numbers that I drew from Wikipedia this afternoon, and PBS program Frontline.
Today Walmart is the worlds largest retailer, as well as the largest corporation, with 6,700 stores, 3,400 of which are in the United States. Annual revenues of $356 billion, and 1.5 million employees worldwide, 1.2 million of whom are in the United States. As such, it is the largest private employer in the United States and Mexico, and hires 600,000 new employees each year, reflecting a company turnover of about 44 percent, which is pretty much close to the industry average, I should mention. Walmart is also the largest grocery retailer in the United States, with an estimated 20 percent of retail grocery and consumable business, and the largest toy seller in the United States, with an estimated 45 percent of the retail toy business.
Some people of course argue that Walmart reduces living standards, hurts retail trade, disrupts communities, and relies on government programs to provide healthcare for many of its workers. Others argue that Walmart has improved Americas standards of living, with lower cost for consumers, greater employment opportunities, and healthier communities, especially for the least affluent.
So, were here tonight to try and sort this all out. And, as I said, were delighted to have two experts who have looked at many of these questions. The format for the debate tonight is that each of the speakers will speak for 20 minutes. Afterward, they will have the opportunity for a ten-minute response. Well then open it up to questions and discussion from the audience afterward.
Our first speaker is Richard Vedder. Professor Vedder is a senior fellow here at the Independent Institute. Hes actually authored two books here, among other things. Hes a distinguished professor of economics at Ohio University. Hes the co-author of the book Out of Work, I mentioned, which is in a second edition, and, most recently, of the book The Walmart Revolution, which is on tonights topic. The subtitle of that is How Big-Box Stores Benefit Consumers, Workers and the Economy. Im delighted to welcome Richard Vedder.
Thank you very much, David. Im delighted to be here. As David mentioned, I have an association with this fine institute, that goes back, I think, to its beginning in one form or other, which now must be 20-something years. Hard to believe. And I am delighted to be here.
As David indicated, attacks on big corporations are commonplace. He didnt get into this in detail, but in his introduction he alluded to something that is worth pointing out. Im an economic historian. I have to mention that the attacks on Walmart today are the continuation, in many ways, on attacks on large corporate entities that have been going on in various ways for a long, long time. It was almost exactly 100 years ago today, for example, that Ida Tarbell wrote a book about the Standard Oil Company. The company was viscously attacked at the time. And then later on, we were told that General Motors in the 1960s was producing inferior cars. Remember the Corvair and Ralph Nader? And we learned that oil companies are hurting us and causing all sorts of problems in our lives. Tobacco companies and so forth.
So the criticism of large corporations is not new in America, and I would say that historically, in many cases, they tend to be overblown, although some of the criticisms may be justified. Standard Oil gave us cheap kerosene and gasoline. And research has subsequently shown that the Corvair was not particularly unsafe.
Six Criticisms of Walmart
But today, lets talk about Walmart. Let me mention six criticisms. Walmart costs jobs. It costs jobs in many ways. It costs jobs locally, when it comes to town, and workers lose jobs at competitive firms, competing firms. It costs jobs because globalization leads to decline in manufacturing jobs in the U.S., and Walmart is a large importer of goods.
Secondly, were told that Walmart pays substandard wages. That its wages are low, lower than they need to be, lower than they should be, lower than what is appropriate.
Thirdly, were told that Walmart does not provide health insurance for its workers, and this is a shameful condition that needs to be rectified.
Were also told that Walmart destroys local business, and downtown areas, and often wreaks havoc with the fabric of local communities in a variety of different ways.
We are told, fifthly, that Walmart is a burden on governments. We see this because Walmart workers are on Medicaid, were told. That Walmart receives subsidies sometimes when it comes into communities, in the form of tax credits and breaks. That it adds to the burden on taxpayers.
Six, were told that Walmart hurts the environment. That there are environmental problems of the variety of sorts with Walmart.
And there are other minor, or lesser criticisms that I wont go into. We only have 20 minutes.
My favorite came from a law professorat, of course, the University of California, where else?who argued very passionately, recently, that Walmart hurts womens health. That it is a detriment to womens health. And it took me a long time to figure out what the reasoning was there. The reasoning, by the way, is that when you go into a Walmart store, you dont have to walk as much as before we had Walmart, and women arent walking as much as before, and they need to walk more, and therefore their health is impaired. Although I think the woman who made this claim had never been in a Walmart store, because every time I go in, theres a lot of walking, I think. But anyway.
So there are a lot of criticisms of Walmart. Let me talk about them for a few minutes. And then let me talk about what I think are some of the positive attributes of the company.
Does Walmart Cost Jobs?
First of all, does Walmart cost jobs? It is no doubt true that there are some workers, who had jobs before Walmart came to town, who lose their jobs when Walmart comes to town. They work for the local, competitive, small store that goes out of business. They lose their job. It is no doubt true that there are some people that have worked in U.S. manufacturing plants that are no longer working in U.S. manufacturing plants because jobs are being created in Chinathe products are being outsourced to foreign companies. And, in some cases, Walmart is buying those goods.
But it is also true that Walmart creates a lot of jobs. First of all, every new Walmart store employs typically 300 or 350 workers right by itself. This is exclusive of any other synergies, or other stores that may open up at the same time when Walmart opens up in the community.
Research that I have doneIve looked at Walmarts that open, and Ive looked at employment in communities the year before Walmart opened. I looked at employment in the communities the year after they open. Ive tried to correct for regional effects, and other effects that might impact on this, and looked at employment. And Ive found, in a majority of cases, there are more jobs in the community after Walmart comes to town than before. That finding is very consistent with the finding of several other scholars that, on-balance, Walmart is probably a job creator.
Its interesting that in the era of the Walmart domination of retail in the 1990s and 2000s, the average unemployment rate in the United States is lower, not higher, than it was in, say, the 1970s, before Walmart became a significant force in our life. The data simply do not support the hypothesis that Walmart is a net destroyer of jobs. Simply does not support that, in my judgment.
I could go into some arguments relating to globalization as it relates to this, but its true, as international trade has expanded, job creation has expanded as well. Unemployment rates in the last decade or 15 years, for example, are on average lower than they were in the 1970s, when the international trade sector was much smaller.
Walmart, by the way, although it is a big importer of goods, is hardly unique in the big-box industry in importing goods from China and other places. I defy you to go into a Best Buy electronics store and try to buy an American made good of any kind in one of those stores.
Walmart and Wages
Second, with regards to wages: you dont get rich working at Walmart. A typical Walmart worker, they report the average wage is between $10 and $11 an hour. Varies a little bit from state to state. Theres some regional variation. My guess is that in California its a tad higher than that, because your wage levels tend to be a little higher than average. I would guess in this state its around $11 an hour. And there are a lot of workers that make $8 or $9 an hour. There are others that make $15.
But these wages are not out of line with industry standards. The average pay in retail trade is low. Workers tend to be relatively inexperienced; they tend to have relatively low levels of skill, on average. And this is very typical for an industry of this kind.
Walmart, by the way, has one fringe benefit, or one attribute thats a little unusual in the industry. It does have a large number of its employees that own common stock in the company, which makes it somewhat different than some of the others. And there seems to be some high level of loyalty to the company, on average, even though, obviously, there are some exceptions. David mentioned, for example, the turnover rates of Walmart employees are really not out of line with industry standards, and that, as best I can tell, is the case.
By the way, Im somewhat hampered in talking about this, because Walmart itself, inexplicably, didnt provide me with a lot of information that I asked, even though I was saying nice things about the company. And, by the way, I dont own a single share of Walmart stock. I never had much association with the company at all, other than shopping there a few times. And thats it. I never met a major Walmart executive til two weeks ago when I ask him to sell copies of my book. And they refused to in their stores. Which is one of the worst business decisions they ever made.
Walmart and Health Benefits
What about health benefits? This is what gets a lot of the attacks from the labor unionsand it is the unions that are leading this attack on Walmart, make no mistake about it. There are other groups too, but it is the unions that are leading the way more than anyone else.
Health benefits in the industry tend to be relatively low in retail trade. I see varying numbers. Never higher than 50 percent, never lower than 40 percent of the workers, receive health insurance through Walmart. Thats not atypical of that industry.
How many workers at Walmart have no health insurance at all? Ive never seen a number higher than 10 percent. And its usually somewhat lower. Many, many workers are on their spouses healthcare plan, their parents health care plan, or theyre senior citizens like myself, who are those blue-suited guys at the door, some of whom are senior citizens who are on Medicare already. Most people have some sort of benefit.
Now to be sure, Walmarts healthcare policy expects you to pay some of the premium yourself. The benefits are not opulent in the sense of being a Cadillac policy. But this, as I say, is not out of line with industry practices.
Walmart and Local Businesses
What about local businesses? We hear that local businesses are sometimes destroyed. Walmart comes to town and the downtown closes down in small communities. Well, that sometimes does happen. And there are stores that go out of business when Walmart comes in. But I might add, they go out of business not only because Walmart comes in, but because consumers shop at them. So if you want to blame someone, blame the consumers. Maybe we ought to tax the consumers who are doing this dastardly thing. Theyre going to Walmart and shop. Thats what puts these businesses out of business. Its because Walmart is offering a superior product, more choices, lower prices, good parking, etc. Giving people what they want.
And by the way, the destructions of downtowns started long before Walmart came along. I remember in the1950s and 60s, shopping centers came in on the outskirts of town. People said, There goes the downtown. And that argument has been repeated in one form or other since it.
Joseph Schumpeter, the great Austrian economist, speaks of creative destruction. That we are constantly changing. As our tastes change, as technologies change, we find new ways of doing things. And, indeed, I think Walmart in some ways has peaked as new forms of technology are coming along to supplant it. Internet shopping, for example.
Walmart and Taxes
We are told that Walmart is a burden on taxpayers. Now, it is true that Walmart occasionally gets subsidies when they move into communities, from communities who want to lure Walmart in. And I tend to agree with the critics, that this is not a very smart idea. To give corporate welfare out. But I dont know why Walmart should be singled out any more than any other corporation.
But its also true that Walmart pays billions in taxes each year. Indeed, I dont have the exact figure for Walmart, but I would guess, since they pay sale taxes at virtually 45 of our 50 states of this Union, and making a certain assumption, its almost for certain that Walmart pays far more in taxes than it makes in after-tax profits. Their taxes are higher than its profits. And to argue that Walmart is a serious burden on taxpayersits just simply hard to fathom, even with some workers receiving Medicaid benefits, which is true. But its also, I may say, true at other stores like Target or Best Buy and so forth.
Walmart and the Environment
What about Walmart and the environment? Well, this is a big argument, and we have little time. Walmart actually is getting some kudos lately from some for its pro-environmental actions. I was reading in todays newspaper, for example, that its trying to use solar power in this state more, in a much larger fashion than previously. Its putting pressure on its suppliers to do environmentally friendly things.
But one of the arguments is, it brings congestion to communities; it builds unsightly stores. But usually Walmart goes into some pretty grubby areas of town, where the stores that are already there are not architectural wonders. And one persons eyesore may be another persons Taj Mahal. So I find this argument a hard one to evaluate.
My time is I think down to four minutes or somethingoh, wait, I didnt see that. Five. My eyes are bad. So youll have to help me here.
Vedders Positive Case for Walmart
So let me turn now to the positive on Walmart. What is it that Walmart has done of a positive nature for American society? One thing that gets little attention that I want to mention first, and then talk about the things David mentioned in his introduction.
It is almost certain that Walmart has enormously increased productivity in retail trade. Workers in retail trade do a lot more, much more. They sell a lot more goods; they get more goods to the consumers today than they did a decade or two ago. Between 1987 and 2004, labor productivity in the Walmart part of the retail trade industry rose nearly 8 percent a year, according to the U.S. Department of Labor. This is far greater than the productivity advance in the rest of the economy, and its extraordinarily unusual for retail trade.
This means that workers are turning out more goods per hour, and this leads to rising standards of living, rising wages, rising prosperity for Americans. Not only employees of Walmart, but Americans as a whole. This, in my calculation, under the most conservative of assumptions, has raised our national output by tens of billions of dollars annually, and one could make an argument that it comes closer to being hundreds of billions of dollars annually. I wont put a specific figure on it, but to say that its substantial.
The second thing Walmart does of a positive nature: it creates what we economists call consumer surplus. It means that people are able to get things that they would buy anyway for less money. Youre willing to pay $12 to buy a widget, and youre able to buy one at the old style store for $10. Youre getting it for $2 less than youre willing to pay. Walmart comes along, and now its only $9 instead of 10, so youre now getting it for three bucks less than you were willing to pay. You gained a dollar. One more dollar in your pocket. And thats welfare to you. Thats happiness for you. Thats material happiness. A dollar here, a dollar there, it all adds up.
Walmarts annual sales, worldwide, are over $350 billion a year, roughly a billion dollars a day. Walmart sells a billion dollars of goods a day. And if people save 5 percent or 10 percent on those goods from what they otherwise would, they may mean as much as $100 million a day in savings for people.
Now who are these people? Who shops at Walmart? Well, Walmart appeals to everyone, of every income class. But the evidence is quite clear, that it especially appears to people of low and middle incomes. But a very substantial proportion of Walmart shoppers are poor. Poor people like Walmart. Poor people shop at Walmart, and spend a disproportionate percentage of their income there.
When you do away with Walmart, and you attack Walmart, youre attacking poor people. It is the equivalent of imposing a regressive tax on people. Its exactly the same, in my opinion.
Lastly, Walmart creates jobs. There are more people working in America than ever before. And I dont want to say that Walmart gets all the credit, or even most of the credit for this. But to argue that Walmart is a destroyer of jobs is simply inconsistent with the factual evidence. Walmart has been a great innovator. It has improved the lot of many, many Americans both by providing jobs and by providing a greater standard of living through lower prices. It has been the ultimate American success story of the last century.
Sam Walton had a vision. Sam Walton was a fanatic in wanting to get this vision fulfilled. And he worked hard. He believed in everyday prices, he believed in meeting the needs of consumers. And he did it well. He cut costs relentlessly. He shared rooms with his senior executives when he stayed in hotels, much to their chagrin. He did everything he could to cut costs. But he did it help himself, to make more money, to be wealthier. But he helped society as well.
As a final footnote, I would mention that Sams widow, Helen, died last week. She is leaving almost her entire estate, close to $18 billion, the Walton Foundation to serve humankind. Thank you very much.
Thank you, Richard. Our second speaker is Ken Jacobs. Ken is the chair of the Labor Center at the University of California Berkley. Hes also a former member of the mayors Universal Health Care Council in San Francisco, for the city of San Francisco. Hes co-author of a number of studies that are related to our discussion tonight, including Declining Job-Based Health Coverage for Working Families in California and the United States and Hidden Costs of Walmart Jobs. Ken?
Chair, U.C. Berkeley Labor Center
Thank you, David, and thank you for having me here tonight. And thanks everybody for coming out and missing American Idol. And the Giants-Mets game. I dont know. Get your priorities straight, guys.
So Id like to follow this up by reviewing the research on a number of the questions that Richard talked about, to really help us understand how we should think about Walmart, and more importantly what, if any, action can or should be taken. Does Walmart have lower wages and benefits compared to other retailers? Do they reduce wages and benefits when they move into a community? Should we care? Do they reduce prices when they move into a community? Is shifting health costs a bad thing? And, even if we do care, what can we actually do about any of this.
Areas of Agreement
Before I go into detail on wages and benefits, I want to start with some points on which I do believe Richard and I do agree. Walmart really has revolutionized retail in the United States. Their everyday low price model has driven down prices. The biggest contribution is the transformation of the logistics supply chain. Their use of technology, retail link, RFID chips, has enabled them to move goods and ship them in a much more efficient way than ever in the history of humanity, and other businesses are just catching up. Their logistics sector, in terms of the use of cross-docking and just-in-time inventory, allow them to make changes in stores at a moments notice. And all of this, as Richard noted, has led to major increases in productivity.
They also, given their size and scope, are able to exercise significant control over sourcing and suppliers, and in doing so have really reversed the equation in retail in Americain the world. The historical equation was, producers produce what theyre going to produce, and retailers then sell. Theyre the second level down.
What Walmarts done is flip that around. Walmart really controls what is being produced, how much its being produced for, and has used its tremendous power in a sense the argument they make is theyre a consumer union. They use their power to bargain prices down for consumers, much like the Democrats would like to do with Medicaid drugs.
On the flip side, that bargaining with producers has meant they are also pushing off-shoring. Theyve told business, if you want to continue to produce for us, you got to go offshore. You got to get those prices down. You cant produce in the United States. So, that costs jobs in the U.S.. It also lowers prices. One has to look at how do we think about this.
So, theres no question that in doing this, Walmart has brought retail prices down. And Ill get into the evidence on that in a minute. But first I want to start and talk on the evidence on Walmarts wages and benefits. I know Richard gave some generalities, but its really worth looking at some of the specifics.
Walmarts Wages and Benefits
If we do a straight wage comparison between Walmart and other retailers, you find its about a 26 percent wage gap between them and large retail, thats retailers of 1,000 or more. The straight comparison in California is 30 percent.
As Richard notes in his book, however, if we compare wages between Walmart and other retailers, we have to take into account geographic distribution of the workforce. Right? Walmarts more in rural areas, less in cities. Wages are lower there.
So using the March 2005 current population survey and data from Walmart, we compared hourly retail workers in Walmart and did those adjustments for location differences.
And we found a sizeable wage gap between the earnings of Walmart workers and retail workers overall. Thats the general retail workers. About 12.4 percent. The gap when looking at large retail goes up to 14.5. Grocery, 17.5. And large general merchandise, so thats their other direct competitors in general merchandise, 25.6 percent. So the evidence is very clear. Walmart does pay less than other retailers.
We find similar differences if we look at health benefits. As Richard notes in his book, Walmart provides about 43 percent, some say 46 percent, of its workforce with health benefits. That compares to about 53 percent for large retailers as a whole. But the difference is much starker when we look at the quality of those health benefits.
Walmart spends about 27 percent less on health benefits than do large retailers as a whole. And to understand what that actually means in terms of the quality of benefits, in an internal Walmart memo, Susan Chambers noted that most of their associates, as they call them, would have to be bankrupt before they met the deductibles on their health plans.
So in looking at it in terms of the health benefits, despite the general talk that Walmart workers have coverage elsewhere, the data is also clear that children of Walmart workers are much more likely to be uninsured than children of large retails as a group27 percent compared to 22 percentand significantly more likely to rely on Medicaid or SCHIP for healthcare, the childrens healthcare programs. About 19 percent of children of Walmart workers are on public programs compared to about 7.5 percent for retailers as a whole. So there actually are some significant differences here.
But this points to one of the public costs of Walmarts low wages and benefits. And as we know, when workers dont earn enough to survive and support their families through their job, they rely on public assistance programs to make ends meet. Thats what public assistance programs are for. Its good that theyre there. But what that means is, if firms are using those programs to function as subsidies, as appears to be the case in Walmart, that can put competitive pressure on other firms to do the same, which overwhelms the public sector.
In 2001, we found that California Walmart workers, and their children, received about $32 million in health-related public assistance and $54 million in non-health-related programs like food stamps$86 million a year. Their workforce has nearly doubled since that time, so those numbers most assuredly have gone up.
And I know Richard did note, that, well, theyre collecting a lot of tax money. But, as well get into in a minute, Walmart isnt increasing the amount of retail sales in America. Theyre just changing who collects those taxes. So to argue that their retail sales off-balances it, is simply not true.
But the impact of low rates of health benefits go beyond direct public assistance, as the governor has been pointing out repeatedly recently. When people dont have healthcare on the job, and they get healthcarethey end up relying on hospitals getting uncompensated care, and that ends up in all of your health premiums.
But if Walmart was creating new jobs, and employing people who would not otherwise be employed, none of this would be an issue. Right? So its important to look at, as Richard noted, whats the net effect of Walmarts expansion on employment, on wages and on benefits? So I want to look at that research now.
And heres a point I want to agree with Richard. The preponderance of evidence around Walmart in retail job creationthis is leaving aside the question of off-shoringis that Walmart has no effect on total jobs. Therere a few studies that found a small, positive effect. A mound of studies that have found a small, negative effect. Turn it every which way but sidewise, and the safe conclusion is, after Walmart comes in, the number of retail jobs is the same as it beforehand. Its just different jobs. In fact, retail employment in the United States has been incredibly stable for the last 20 years. Walmart doesnt create new jobs. It replaces existing jobs.
But when we look at this research, therere some areas that actually become very difficult. And I know, I looked at some of the stuff Richard did, you know, take a few cities, whats the employment before, after. But, really, Walmart doesnt make its decisions on location in a vacuum. They look where are places growing, what are current wages, so you really need to put in some controls if you really want to understand what the impact is, and not just be getting what economists call selection bias.
So my colleague, Arindrajit Dube, did a study to look at Walmarts impact on healthcare and on wages on retail as it expands. One of the nice thing about Walmarts expansion, and this is a beautiful part of their logistics model, is theyve expanded out pretty concentrically from Bentonville because they move their distribution center, go around it. Move out. So you got a nice pattern. So he was able to use, as they call it, instrumental variable, distance and time, time and distance from Bentonvilleits like a drop of water going in a poolto look at whats the effect of Walmart as its expanded in counties and states on wages.
So what he found was that Walmart reduces wages in general merchandise, not a surprise. Theyre going in, replacing those jobs. Walmarts expansion reduces wages in that grocery industrythat shows it has a competitive effect. And, Walmarts expansion does not reduce wages in non-competitive retailthat shows that the studys actually picking up something real. He also found a decline in benefits.
Whats it all add up to? Average per state, were talking about a 5 percent decline in heath coverage in retail overall, and about a 10 percent decline in retail earnings. Which, total lost earnings due to Walmart range close to $5 billion a year. So these are real results.
And the sharpest example of this can be seen in what happened in southern California following the grocery strike and lockout three-and-a-half years ago, where the grocery companies said that in order to compete with Walmart, they needed to reduce their health benefits, and ended up, in a three year period, cutting the share of workers with health benefits in southern California from 94 percent to 54 percent. We can argue about how much that really was Walmart, or they were using it, but it is a significant impact, and it was Walmarts expansion that precipitated that event.
Walmart and Consumer Savings
All right. So the evidence strongly suggests Walmart lowers wages and benefits. But what about consumer savings? Richard makes the point that you got some welfare benefits on the other side. Right? Lots of consumers are saving money.
This is actually really hard to figure out. I know in his book, Richard does a bunch of hand waving to try to come up with some numbers, and I dont blame him, because its difficult. Its hard to use the Consumer Price Index to do this, because according to the Consumer Price Index, there can be theoretically no impact. If goods are cheaperor selling for lessit has to be either because theyre lower quality, or because people are paying to get different shopping experiences. So into the theoretical model is an inability to show any kind of change.
This makes it hard to study. Theres been some very good work done, by people like Hausman and Leibtag, really looking at identical grocery products, where that is the easiest to do. And the various grocery studies show, depending on the goods, some 7 percent to 26 percent difference at Walmart. Thats not small. And estimates of competitors dropping prices to meet Walmart is usually around 1 percent. One study found as much as 3 percent.
And grocerys where youd expect to find that the most, because Walmart really uses that to bring people into the store to buy other goods. So youd be surprised if you found similar margins in other areas. So its clear Walmart saves consumer money.
So weve got this issue. Theyre driving down wages and benefits, thats clearly hurting workers. Theyre saving consumers money, thats clearly helping people. So then the question comes back to us, which is the point that Richard made, how does this work out in terms of who theyre helping and who theyre hurting?
In Chicago, people may be familiar, the city council passed by a two-thirds vote a big-box living wage ordinance. Would have required Walmart to pay $10 an hour minimum. Vetoed by the mayor. The mayors supporters just lost the last election. Itll probably come back pretty soon.
So we looked and said okay, what would happen if Walmart had to pay $10 an hour nationally? We estimated it would require a wage increase of 16 percent, about $4 billion dollars a year, bringing them in line with large retailer as a whole, if still significantly behind union grocers.
The cost of such a wage increase, of course, could be absorbed in a number of ways: lower profits, reduce management salaries and bonuses, efficiency wage-gains through higher productivity, less absenteeism, or it could be passed on to consumers.
So lets assume its all passed on to consumers. Doubtful, but lets assume that. With $266 billion in sales in the U.S., a $4 billion wage increase could be passed through with a 1.5 percent increase in profits. According to ACNielsen, the average customer spends $40 on a sale. So a 1.5 percent cost increase is 62 cents. The average customer takes a little less than 28 shopping trips a year, so were talking about a $17 per customer.
So how would that fall on low-income shoppers, compared to the gains from low-income workers, if we want to think of Walmart as being an anti-poverty program?
Well, ACNielsen divides Walmart shoppers into 12 even groups, the top two tiers account for 54 percent of sales. Whats interesting is that while 21 percent of Walmart shoppers are in families below 200 percent of the federal poverty line, only 9 percent of their top shoppers are. Well this isnt a surprise. People with more money spend more money; people will less money spend less money.
So what that means is, you have less than 20 percent of the sales going to low-income households, while more than half of the wage increases would go to low-income households in this model.
So basically, what we can see from this is that one can imagine the kinds of policies that would get the efficiency gains from Walmart, allow them to compete in the market, and yet still have greater benefits for workers without dramatically reducing the benefit for consumers. The impact on consumers would be spread broadly. The impact on low-income workers would be quite significant. That is what the laws proposed in Chicago and Washington, D.C., look to do, those are smart policies.
Other Criticisms of Walmart
There are a few other criticisms of Walmart I think its important to mention quickly, and then Ill wrap up. As we look at Walmart and how we should think about them, one of the points that Richard made in his book is this question of why treat Walmart differently than other companies? And actually this is an area where, in general, we agree. I think that if Walmart didnt exist, it would come into being by somebody else, and there are other ones waiting in the wings. The question to me is, in this new world, what are the kinds of policies that should be put into place, in order to level the playing field overall?
Theres also the issue that when a company like Walmart does violate the lawwhich they do, repeatedlyof course, they should be punished. And I just want to mention a few examples.
Walmarts anti-labor practices go way beyond standard competitive measures. The companys violations have included hiring janitorial contractors that pay sub-minimum wages, mostly illegal immigrants, locking workers in the store overnight in violation of health and safety regulations, charges of using child labor, meal-break violations, and of course, nowtheyre now facing the largest sex-discrimination suit in U.S. history. Of course Richard points out, correctly, that as the largest employer in U.S. history, its going to be the largest suit in U.S. history.
Human Rights Watch just released a 210 page report that found that Walmart stood out for its aggressive anti-union tacticssome legal, some illegal. I quote: Walmarts relentless anti-union drumbeat creates a climate of fear in its stores. Walmart has sent managers to eavesdrop on employees. According to former workers and managers at one store, it even ordered the repositioning of surveillance cameras to monitor union supporters. Theres been other issues of Walmart actually surveilling shareholders of the company in order to figure out who was giving out leaks. I would think that libertarians would be especially concerned with the companys aggressive stands towards cities in seeking economic development studies.
While Walmart doesnt increase total sales-tax generation in a region, it can have a real impact on which jurisdiction receives that sales tax. So by invoking threats to open up in a specific jurisdiction, theyve secured more than a billion dollars in taxpayer subsidies over the last decade. And I suspect many people in this audience would be a little uneasy with their aggressive efforts to push local jurisdictions to use eminent domain to gain land for them to build on.
Finally, many Walmart opponents dont look at economic issues at all, but are more concerned with the impacts on traffic, the destruction of small town centers, community spaces. And Richards surely right on this point, that Walmart must be located within a larger trend, but theres no question that the companys been a large part of that trend. And town residents have the right to make zoning rules that govern what kind of community they wish to live in.
Which brings us to the important question of choice. Richard argued that banning big-box threatens consumer choice. After all, people dont have to shop at Walmart. Its a question of what consumers choose to do.
The problem here is it only takes a minority of switchers to Walmart to undermine the economic viability of smaller competitors. When grocery stores and small businesses lose even 20 percent of their customer base, this may push them over edge. So the end result is less consumer choice, not more. More people who want to have that choice are left out of it, because the one thing left standing is Walmart.
So in the end, some communities will decide they want big-box retail. In fact, I have to say, in our research, you dont find any of the negative wage and benefit effects in rural areas. Its not surprising. The jobs theyre killing didnt pay much to start. You do find substantial wage and benefit effects in urban areas. Some communities will decide different on this. Other communities will decide they will accept big-box retailers if they meet certain community standards. Others will decide to keep them out altogether. And thats the beauty of democracy in America. Thanks.
Weve had both sides make their major presentation. Well now enter into the response. Each speaker will have 10 minutes, and well start with Professor Vedder.
Articulate presentation of the alternative point of view, I must say. Ive done a lot of these debates with a lot of people, and his presentation is the most intelligent of all of them Ive seen. Which isnot to say I agree with it, of course. But he at least is trying to marshal evidence, rather than emotion, in making his responses.
It is true that there are areas where we could sit and quarrel. Are wages lower for Walmart employees than others? Wage gaps of 26 percent to 30 percent strike me, even looking at the data in detail, as excessive. The 12 percent to 14 percent range figures perhaps are more realistic.
Let us suppose for the moment that he is right. Let us suppose for the moment that Walmart pays its workers a dollar, a dollar and a half, less an hour, 10 percent to 15 percent less than other retail employers do. How do they get away with it? Why dont the others follow? Is it the Walmart workers are unhappy? Are the Walmart workers furious? Are the Walmart workers clamoring to organize?
And indeed, the frustration on the part of the critics of Walmart comes precisely because Walmart workers are not collectively unhappy. And you know, who knows? We dont take daily, weekly, monthly surveys of Walmart workers conducted by Gallup Poll or something, and the same for Target or Best Buy. So we cant say definitively.
But it strikes me that the evidence suggests that Walmart workers are relatively happy with their position in life. And to the extent theyre unhappy, its the extent to which retail workers in general are looking at this as the first step in a move up, a chain of jobs over a lifetime.
And so I think that the evidence is, he could put his study up against my study, and we could argue this. I dont want to get into that debate.
Now Ken suggests that theres a fixed pie of retail sales, and when Walmart takes some of these sales, theyre taking them away from someone else, so that the pie of retail sales has not been increased.
I simply reject that conclusion. I do not accept that conclusion. Because I think the gross domestic product in this country, the personal income of Americans collectively, is higher today than it would be if we did not have big-box retail stores. How much higher? We can debate that point. Probably GDPs of percent2 percent, 3 percent, higher, at least. Thats a hundred billion, two hundred billion, three hundred billion. And some of that extra money a good bit of itwould be spenton retail sales. I think that people have more goods and services today because Walmart exists.
Walmart lowers prices from what they otherwise would be. Even Ken sort of seemingly, grudgingly admitted it, mentioning the famous study by Hausman and Leibtag, for example, Emek Basker and others who generally show that Walmart have lowered prices to consumers. And that is the crux of my argument.
Consumers are important. There are 300 million consumers in the U.S. Even if you were saying this is a battle between consumers and workers, and that we somehow are in a class struggle between the consumers and the workers, therere 300 million consumers, therere a million and a half Walmart workers who dont seem to be too underfed and too unhappy. The only people that are unhappy are the labor unions, who cant organize them.
And then that is the basic crux of this. This is all about labor unions are not organizing them. Its all about that people arent shopping at Safeway anymore, and at Albertsons, and at traditional grocery stores, theyre going to Walmart.
Why are they going to Walmart? Cheaper, everyday low prices. Walmarts non-unionized, these other stores are.
Now lets take the $4 billion and give it to these workers. Lets say Walmart does that. One way to do itraise everyones prices. Ken suggests that would be one way to do it. So lets take $4 billion dollars out of the pockets of the consumers and give it to the workers as part of this resolution of the class struggle that Ken has introducedthe consumer-worker class struggle.
Why? Whats it going to accomplish? What is going to happen if you charge people $4 billion dollars more? Theyre going to be a lot of poor people who are going to have a little bit less money. Theyre going to have a few bucks less. You could say, well, theyre just $17 a year less. For lower income people, thats a lot.
What about Chicago? He approvingly says, lets have a $10 minimum wage in Chicago. Why not $20? Why not $30? It has the effect of keeping Walmart out of large cities, where there are a lot of poor people, for whom transportation is a big expense at $3 plus gas, $3.50 out here, isnt it? $4 in the peoples republic.
So there are a lot of people who cant afford to go to Walmart in these cities, and theyre kept out by various groups, especially labor unions, who are trying to protect the interest of their workers at the expense of poor people. Progressive people ought to be furious at the attacks by the leading Democratic candidates on Walmart. It is an attack on the poor. Its an attempt to put regressive taxes on them.
Another way they could get the $4 billion, of course, is to lower Walmarts profits by $4 billion. Now that sounds like, lets just rip out $4 out of their profits. About half. Cut their profits. And the U.S. taxes would go down some, by the way, if that happened, too. Taxpayers would take it on the chin.
But another group that would take it on the chin is the price of Walmarts stock. You say who cares about Walmarts stock? Its price would fall probably eight, 10 bucks a share. Who cares? What about the pension funds that own Walmarts stock? What about the over half a million Walmart workers who own stock in the company, who would lose on that end? What they gain on the one end, theyd lose on the other. There are all sorts of unintended consequences of proposals like the one suggest by Ken.
There are a lot of other things I could talk about. What about Medicaid? Yes, there are Walmart people receiving Medicaid. Whether it is substantially higher than other stores, as Ken alleges, I think is problematic and debatable. But let us point out that Medicaid is not unusual in the American population. What percentage of the American population is on Medicaid? It is at least 10 percent, 15 percent.
And in the state of Washington, the unions announce that there are 3,800 Walmart workers in our state that are on Medicaid. And some state senator really got excited about this until he was embarrassed when someone pointed out that there are about the same number of state employees on Medicaid. So lots of big companies have lots of people on Medicaid.
And the bottom line is that Walmart is doing what it does well. It is serving people. It is bringing welfare to ordinary Americans.
By the way, a lot of critics of Walmart say they should be like Costco, because Costco, of course, has a lot of union workers, which means theyre good. Walmarts bad because their workers are not union.
By the way, you know, unionization in America in the private sector is nearly dead. Its down to under 10 percent. This is the last gasp. In a society in which people are getting wealthier by the yearwere the wealthiest society in the worldunionization is declining, workers are getting better off.
So I could go on and on. Sure theres lawsuits being filed against Walmart all over the place. There are a million-and-a-half people working at Walmart. Theyve got more employees than the U.S. Army. The U.S. Army is a professional organizationit generally does things pretty well. But now and then workers screw up there. There are people who screw up at Walmart.
I would argue that Walmart as a whole is a company that has served the good of America, as much or more than anyone else. Thank you very much.
So, in his rebuttal, Richard did a god job of doing what he does quite a bit in his bookthrow out large numbers without any evidentiary basis.
Lets start with the impact on earnings per share. He said something that it would costwhat did you say, $10, $15 a share? Im going to turn to the bastion of leftist researchBank of Americato look at their analysis. They estimated that an after-tax impact of a 50-cent wage hike would be zeroso itd be a0.13 dollars. So thats a tenth of a cent per share. So just to put all this in a little bit of perspective. So if were talking about a buck increase, were talking about a quarter-cent-per-share impact on shareholders. A little bit less that $5 or $10.
I sort of love this debate. First Richard comes out and says hey, Walmarts really good for poor people. Then when I point out its not good for poor people, then he says were engaging in class struggle. So lets be real.
Workers and consumers are the same people. Consumers work, some of them. Workers consume. Hopefully, most of them, maybe a bit less than some other people, depending on where you on the income spectrum. We all have a dual life as workers and consumers. Thats the reality. Thats why, in general, people look at Walmart in a mixed way.
When there was the discussion of Walmart coming into Chicago, and there was debate going on in the South Side of Chicago about them coming in, some of the people with ACORN there, the community organization, were saying lets keep Walmart out. And their members were saying, why would we do that? We need retail. We want cheap goods. But then what the members said was, we also want to be treated with dignity. And so we want jobs that come in that treat us well, and that pay us a living wage.
Thats the balance. Its simply intellectually dishonest to argue that Walmart is overall better for poor people, and that any wage increase would hurt poor people more than it would help. The numbers simply do not back that up. A wage increase at Walmart would be spread broadly across a large group of consumers at all ranges of the income spectrumas we mentioned, an average of about $17 a yearwhile the gains would be felt very strongly by people who are, by and large, very low income.
Now you can decide whether or not you agree, and I think we ideologically disagree about how wealth should be distributed in society. Thats a reasonable debate. But to argue that to do a wage increase would hurt poor people more than it helps poor people is simply not supported by the facts.
Theres this other notion that keeps coming up that the reason people are mad at Walmart is because theyre non-union and their workers are all happy. Well, Im the chair of the U.C. Berkeley Center for Labor Research and Education. And if I had a near 50 percent turnover rate, most people would think theres something wrong with my business operation, and maybe my employees arent happy. To argue that people are just pleased as punch about their current situation has, again, very little relationship to reality.
There have been a number of attempts by unions to organize Walmart. If you read the 210-page report that came against Human Rights Watchyou know, the one that used to criticize Poland and the Soviet Union for violations of human rights? Theyre now focused in looking at Walmart as a human rights violator, and specifically at violating workers rights to association. In the Fourth Amendment, I think people remember that, about workers right to associate? Well, Walmart doesnt think workers should have the right to associate.
They think its okay to spy on their employees. They think its okay to fire people for talking to each other about trying to improve their working conditions. I think thats pretty un-American. But hey, we can have differences on these points.
Overall, as we look at this question again, I think a key point that Richard has made, and others have made, I think bears keeping in mind. Walmart is not that significantly different than Target, or Best Buy, or Home Depot. Quick, you name them faster than I do, right? Lowes. Who else is out there? Starbucks pays well and has good benefits. Whatever you think of their coffee, the realitys reality on that.
But this is an overall trend in retailing in America, and that is why I think its important that it be treated on a policy level as an overall trend. If we are unhappy as a society about whats happening with job-based health benefitsweve seen a 5 percent point decline in the last five years. Were seeing that our basic structure of how health benefits are provided in the United States erode. Some people may say thats fine. Lets leave it to the individual hunt and peck on the market. If you can get coverage, good, if you cant bad, and youre on your own, tough luck. Or you may say, hey, I think this is a problem, and I think we should do something about it.
If you think its a problem, then action should be taken on the state and federal level to rectify that problem. In many ways, Walmart is a symptom as much as it is a problem. And those symptoms should be dealt with as a society when we look at the strengths and weaknesses of different kinds of policies that we can carry out, and how they will benefit our society.
So if Walmart is driving down wages and benefits, things like big-box living wage ordinances could makes sense. If health benefits are being driven out, then we can look at in lieu fees for healthcare, as are being proposed by everybody in Sacramento these days. There are various ways to deal with these things. And I think its important to look at Walmart, understand it is a trend thats going on in society, and develop responses to that trend.
Do I think at the same communities have the right to keep a store out of their neighborhood? Of course I do. People have a right to make quality-of-life decisions about their communities. And again, some will make those decisions in one way, some will make those decisions in another way.
I dont hold this personally against Walmart. Its a business. Its job is to maximize profit. And as workers, as consumers, as citizens, our job is to figure out whats best for our society. And in some cases, that will be accepting things as they are. In some cases, itll be changing the rules of the game to better our society. And thats where I think the debate should go. Thanks.
This question is for either one of you, either Mr. Vedder or Mr. Jacobs. Do you have any information at all on the skill setthe level of skill and knowledgethat workers who are hired by Walmart bring versus the skill and knowledge, for example, that workers hired by Best Buy or by other retail stores, such as, for example, Anne Taylor or Gap?
My hypothesis is that Walmart will hire people who are marginally hirable, and that they would not, in fact, be able to get a job at most other retailers. And that that is one of the explanations, I would hypothesis, between the difference in what Walmart can pay, therefore, in wages, and what another retailer would have to pay in wages, that that difference can, in part, be accounted for by the difference in the level of education, skill, prior experience, and knowledge that the person whos being hired by Walmart brings to the table. So I dont know if theres any data. Im really interested in whether there is data.
I dont know. Ken, do you know of any specific data? First of all, these things are relatively hard to measure. It would be possible to at least have education datawhat are the education backgrounds of Walmart employees vis-à-vis Best Buy, and so forth.
I have not seen such data. But I was going to pick up on your pointand this is purely based on my own anecdotal experience, though I point out anecdote is the single, data is the plural of anecdotes.
So my evidence here is very, very limited, I dont know. But I have the same feeling you do. When we talk about retail trade, were including stores of all different types. And the people who work at Anne Taylor, and at Cartier, and at Neiman Marcus, and at Bloomingdales probably, on average, have somewhat higher skill sets than the others. And that is my hypothesisas those who work at Walmart. But I dont know. I dont have any evidence.
I actually think its a good question because we dont have the data on Walmart. Economists call this the labor-labor substitution effect.
So after the living wage laws were put in place in both the San Francisco International Airport and Los Angeles International Airport, we did some before and aftersurveys in San Francisco, another professor at UC Riverside did before and after surveys looking in LAX.
And what was interesting is we found there was no demographic change in the workforce, no significant change in educational level of the workforce. There was a slight change towards jobs, in both cases, jobs that were traditionally more male jobs, moved very small, but statistically significant, towards more men. Hypothesis is at a higher wage, youre got more job applicants, and if youre choosing across the board, youre going to end up with a few more men. But in terms of anything measurable in that area, you couldnt find it.
And I think one of the issues here thats really important that also came out in our research of the living wage impacts in those cities is again what economists calls efficiency wage gains.
Theres this sort of notion that people think of as labor, as somehow its a static thing. Right? A widget, you buy, you sell, and it remains a widget. People are different than that. The evidence is actually quite clear. When you pay people more, their behavior on the job changes. What we saw at the San Francisco International Airport was not only major drops in turnover, which brought important savings to the businessesand we interviewed the HR people, not the business owners. The HR people were in love with this policy, I have to say. Made their lives a lot easier.
But the reports we heard from both workers and employers were talking about improvements in customer service, improvements in attitude on the job, much fewer grievances against the employer.
And these were the same people. So it wasnt a question of these people are marginally hirable or not, it was a question of when you pay people enough, they value the job differently, and they perform differently.
Incidentally, there is some data that we have about this, and I dont have it at my fingertips, but its my understanding that Walmarts demographics is in keeping with what youre suggesting, as far as more young people, more people with impairments of different types, more senior citizens. And these are people who are essentially unskilled, or even having impairments. And thats one of the reasons why there is a wage difference. How about the lady right there?
I really dont single out Walmart, Im talking about big-box development in general. But one thing that I didnt hear discussed is we do have lower prices, but what about the availability of goods?
When big corporations come in and decide what records were going to be listening to, what products were going to consume, they come into a neighborhood, and local businesses go out of business, because they cannot compete.
Walmart, because theyre such a big corporation, they can afford to sell things much cheaper than maybe, lets say, a local bookstore. And statistically, were seeing all these local bookstores go out of business. Amazon.com. You have a limit in the kinds of books you can buy. So for me, its not only a matter of getting something cheaply, its like in the future, what is even going to be available to consumers, if we put all our apples in one basket.
I think thats an excellent question or an excellent point. And it is true that when we evaluate the welfare of consumers, we ought to look, not only at prices, but the availability of products. The choice set that they have.
But you know, its funny, because I look at this a little differently than you do, because I live in a small town. I live in a town that didnt have a Walmart. And people in our town always drove 75 miles to Columbus, Ohio, to shop, because they didnt have a place where you could buy a large selection.
Walmart came to town and sure, a couple local hardware stores closed, local groceries closed, etcetera. But on the whole, we got more choice. Because Walmarts selection of goods is far greater than existed prior to that.
And so we thought, even those of use who usually would not shop at discount houses, or at big-box stores, would go there because of a greater selectivity.
I think that is an issue in evaluating a choice.
You mention Amazon.com. Walmarts stock today is no higher than it was seven years ago. If theyre exploiting the heck out of their workers, its not showing up in the value of their stock.
One thing thats happened in the last six or seven years, more and more people are shopping by the Internet and so forth, and I think theyre doing it partly for convenience, but partly because they feel they get greater selectivity. I shop at Amazon because there are books I can buy at Amazon that are not readily available at the local small bookseller. But there is the other side of the argument, which youre raising. I think its an interesting question.
I would just say that the point you just made really highlights to me the differences in how these impacts are experienced in rural and urban areas. In rural areas, I think Walmart has had a very different impact, in terms of what he talked about wages and benefits, or even bringing in other goods. You know, it destroys town centers. Theres some social capital thats lost. One can balance those things off.
But it is a different impact than you find in metropolitan statistical areas. And I think thats why communities in different places, as I mentioned, will make different kinds of decisions. I mean, I, for one, think Walmart should carry your book. I know it is carried in my local bookstore, and hope that that continues to happen.
But all of these things have a variety of impacts. And thats why I come back to the question is, from a public policy perspective, how do we best maximize the positive impacts while minimizing the negative impacts?
So the first question is, Mr. Vedder, you made a point regarding Walmarts share price. And Mr. Jacobs, you rebutted that a $4 billion dollars off the bottom line would have a marginal impact on Walmarts share price. Just a real quick clarification on that. What if Walmart misses earnings? What if Walmart guides lower? What happens to the share price then? Is there a ripple down effect from there on the share price, or is it that only marginal 10-cent loss that you quoted from Bank of America?
Its not a 10-cent loss, its a tenth of a cent loss. No, actually, Im sorry, I just looked at that wrong. Its a 1.3-cent loss. Its a one-cent loss. I mean, I actually think that it might turn around the other way. The whole point of this Bank of America analysis is that Walmart, because of their behavior, has had relentless pressure against them, in terms of all of these campaigns. And its really showing up in consumer attitudes.
Walmart has a problem right now. Its sort of built out to where they can build in rural areas. To the degree theyre building more stores, theyre cannibalizing themselvesthe same-store sales are going down. Theyre finding serious resistance in urban areas, and B of A says what, its something like 40 to 50 stores are being stopped a year. New Yorkthey gave up on going into New York. Their view is theyve sort of net as far as their going to get with the market, in terms of the working people.
Its actually very funny. For this crowd, I know, Lee Scott said that we should raise the minimum, of course, and hes now also looking at the need for universal healthcare, both because he thinks itll help their consumers be able to purchase more productthats the CEO of Walmart. So I agree with Lee Scott on a few things.
And part of the area theyre trying to reach now is middle-class consumers, as they look at places to grow. All of these negative campaigns are really having an impact on middle class consumers attitudes.
So at this point, it seems fairly likely that some move that would be a very small move, in terms of their overall bottom line, to improve some of these conditions, could, in fact, turn around and have significant gains for them, in terms of their reputation, and who was willing to shop there. So I think on the business side, it cuts both ways.
What does Walmart do for unemployment in a region? Is there any movement as far as reducing welfare or Medicare costs on the unemployed population in a region when Walmart opens up shop?
I can say, as I did in my presentation, weve done very extensive analysis looking at this. As Ive said, using a model, we did 17 different specifications in terms of the regressions cutting it in a wide variety of different ways to try to understand these impacts, and its very clear Walmart does not increase employment as they expand. Employment stays about the same. Overall, the aggregate wages in retail go down. And average wages in retail go down. And health benefits go down.
So all of that combined means it is not possible that Walmart is having an effect on overall removing people from Medicaid, etc. In fact, we find, compared to other retailers, their workers use it more. And thats looking at data straight out of Walmart that theyve made public.
So I think that that answers those questions. From what we have on the data, as close as you can get, its very strong to say that in fact, no, theyre not reducing unemployment, and no, theyre not taking people off public programs.
Let me say, for the recordand I hate these debates where my study says something different than your study, and we can sit here and argue about studies. I would say that the preponderance of scholarly evidence appearing in refereed, high quality economic journals like The Review of Economics and Statistics, journals of this caliber, show that, in general, Walmart has modestly positive employment effects. And wage effects, particularly if you take into account the price effects of Walmart, in terms of price levelsthe CPIs a little lower than it would be otherwisethat Walmart is probably has a modestly positive effect on real wages, particularly given the productivity event.
Now, as far as this B of A study on 1.3Im just going to say flat out, I think it is just bunk, in terms of what we have said. If Walmarts profits fell by a third because of some new social justice program, to think that the price of Walmarts stock would move less than 50 cents a share or something it just boggles the mind.
There are a lot of people in this room who are investors, who I dont think would pay a heck of a lot of attention to the B of A analysis on that.
I had an economic question for Richard, though Id certainly be interested in what Ken has to say. Within any company, such as Walmart, there are different levels of work, and different levels of payment. Managerial work, for example, pays much more than cashiers.
In that gender discrimination lawsuit, its alleged that the two-thirds of the managerial workersand I may not be exact on my statisticstwo-thirds of the managerial workers are men, and two-thirds of the cashiers are women. Do you have an economic explanation for this?
Sure. Thats true throughout American industry, by the way, in general. Its narrowing over time. But over time, there are more people at the high executive ranks that are men, and at the low ranks that are women.
There are differences of experiences levels, there are differences in education levelswomen take time out to have children and so forth. Theyre out of the labor force for long periods of time, etc.
You mention cashiers. Thats interesting. If I recalland its been awhile since Ive looked at the datathe Bureau of Labor statistic average wage for cashiers is something like between $9 and $10 an hour. In 2003, I think it was $8.60 or something an hour. Thats below the average Walmart wage.
Remember, when people go to work at Walmart, they start at $7 an hour or something, often. A year later, theyre at $8.50 an hour. Two years later, theyre at $10 an hour. Three years later, theyre at $12 an hour. That average of $10 or $11 reflects variations around that average. And the managers make an awful lot more.
And so when you go to work at Walmartor you go to work at McDonaldsyou go to work anywherea large part of what youre gaining is your experience on the job. Its the human capital youre gaining from your work from on-the-job training.
And I think Walmart has been very, very important in bringing a lot of younger Americans into the labor force, providing them things like disciplineabout getting to work on time, dressing appropriately, not swearing at the customers. Doing the appropriate things that you need to do to become part of our society. And I think that they deserve some credit for that, as well.
Id just say its a nice theory. Of course, its not supported by the mobility data, but.
Why should Walmart or any other business be criticized for not providing health insurance?
Lets take the case of General Motors. General Motors says that $1,500 of the cost of each car is health insurance. If I were General Motors, Id move the whole business to Canada or some other place where you dont have to pay that price.
If we look at the Massachusetts plan, which was supported by both Senator Ted Kennedy, and then governor at the time, Mitt Romney, weve got, in effect, universal health coverage. How well it works is another matter.
What if we just simply did this: said to the employer, no, youre not going to provide health insurance, but youre going to have to provide the home furniture for each employee. I guarantee you, each employee is going to get the cheapest, ugliest home furniture imaginable.
Why dont we just get business out of this, and get some other entity to provide the healthcare, and stop criticizing Walmart or anybody else for not providing it.
I might just interject one thing before our two debaters make their points. For those of you not familiar with this, healthcare benefits in the United States started as a result of the fact of wage and price controls during World War II. And it was a way for businesses to compete for employees. They couldnt compete using wage differentials. And that became an institutionalized part of the labor market, especially with collective bargaining and so forth.
So you had a labor inelasticity as a result of these healthcare benefits, and the result is the current situation, so.
Just to make a quick point on that, because I think theres some validity in that, and some point we should have a little bit of caution.
Coming out of World War II, the United States went in the directionmainly, it wasnt just because of wage and price controls. There actually was a real contestation going on, where labor, consumer groups, social reformers wanted a universal healthcare system in the United States. Large corporations fought against it. Their view was, if they controlled healthcare, theyd have greater control over their workers. So they fought, and won, an employer-based healthcare system. I think the car companies started regretting that about 20 years ago, but they were in the forefront of fighting for it when it happened in the first place.
When we look at countries like Canadabut most importantly, Germany and Japanall of these countries have universal healthcare systems. They all produce autos. They all compete quite well. And in fact, the German and Japanese systems are funded out of a percent of payroll, so the price of healthcare is in their product price, just as it is in the United States. And theyve been able to compete quite well.
I actually think a universal healthcare system is much more rational. We should have a level playing field. A system where you compete by providing worse benefits, or you put yourself in a bad economic position by trying to provide better benefits, doesnt make sense.
Something should be done to level the playing field, as is been done in every other industrialized nation. The United States has not shown much appetite to go in that direction. Well see.
May I comment on that?
First of all, I thought the question is an excellent one. Why provide healthcare benefits? Why not just give workers compensation, and let them decide how they want to allocate their compensation among alternative uses?
You want to spend it on pot. You want to spend it on healthcare. You want to spend it on booze. We might want to quarrel with the choices that some people make and not think that theyre responsible, but these are human beings. Let them make their own choice. Thats my philosophic way of going at it.
Im a little surprised that Ken said that Germany with their wonderful healthcare systemis competing so well. A country that is stagnating, as is most of Western Europe, with GDP growth of 2 percent or less a year, on average, over the last 10 or 15 years. Much lower than the United States. The gap between us and them is growing precisely because of the burdens of a compulsory welfare state, which includes, as an important component, healthcare.
So although I agree that the healthcare system needs fixing, and thats one thing we do agree on, that were doing it in an irrational way. And it really isnt Walmarts responsibility. So I agree with the general tenor of your question.
You mentioned that the mayor of Chicago vetoed the living wage idea. But prior to that, the council was considering a Walmart application to put a store, as I recall, in Chicago, and they said no.
So they went across the city border into a suburban town, and they had lines of 300, 400 people trying to apply for like a hundred jobs. I dont remember the exact statistics, but there was a multiple amount of people who were seeking to work for Walmart. And it was the result of that that the mayor figured that maybe this is not such a good idea.
But getting further on the living wagemore than a living wage by the autoworkers, the steel workers, the airline folks, and now theyre all not doing well, and we have a lot more competition and choices. And as a result of those choices that General Motors made, and the steel industry, all these legacy costs are now in the Pension Benefits Guaranty Corporation, which I have to pay for. And I resent that.
(smattering of applause)
The fact that the auto industry in the United States made some very poor decisions that have resulted in the bankruptcy of their pension benefits is a serious problem. There was a general tendency by the company to say rather than giving you something today, well give it to you tomorrow. It was irresponsible. I mean, I think they did not set aside the money that was necessary to maintain their pensions.
How about Social Security?
Well, yeah, lets talk about Social SecurityI mean, I dont know if you want to go that direction, but its not.
No, lets not.
But just to say, in terms of the living wage questionbecause there was this point earlier madewell, if you raise the wage, they wont come. In fact, in Santa Fe, New Mexico, they passed a higher city minimum wage, and Walmart opened in the city, and theyre paying people higher wages. Most of whom are Latino.
Walmart looks at a market, theyre not stupid. Chicagos a large city. I think its debatable to make the argument that says if you require higher wages, they wont come. I think Walmart knows where its potential is. The overall costs on this are actually quite small. The tendency is to wave a lot of sabers, and then to go around and do what makes the most sense as a business decision.
And thats why two thirds of the alderman voted for it. Daley vetoed it. Three of them who voted against it with Daley just lost their jobs and were kicked out of office, and itll be coming back in. But I think in the city of Chicago, this is really quite popular.
Well, I dont want to get in a long discussion about Chicago, but there is no question that Walmart located a store outside of the city of Chicago because of this potential threat of this $10 wage.
It meant that people within the city of Chicago are inconvenienced. They have to drive to the suburbs to shop at Walmart, which is, of course, exactly the motive of the people who were pushing this. They either wanted Walmart in their city with the high wages, but they really wanted unionization in, and this was a wayso lets call a spade a spade here.
I have to say, since you mention efficiency wages, Im amused at the use of efficiency wages with respect to Walmart. Walmart, who supposedly is paying these exploitive low wages, has had the greatest productivity advance of any corporation in the retail sector in the United States in the last several decades. Thats the secret of their success: the rise in their productivity, the various computer control systems and so forth that they have used.
So somehow, by paying these low wages, theyve managed to get highly efficient workers, who are growing in efficiency every year. Somehow, the notion that Ken Jacobs knows better than Walmart how they can get more productivity out of their workers by raising the wages strikes me as absolutely preposterous.
Is there anything you want to say about the minimum wage question?
The minimum wage, of coursewe could go on and on forever. Why dont we have $12 minimum wage? Why not a $15 minimum wage? We want to raise prosperity? Lets, by law, raise the wage.
And what will we have? Well have a series of Germanys, and General Motors, and other things like this. General Motors pays $60, $70 an hour when you add everything up. Boy, isnt that a great place to work? Both workers there are enjoying their jobs.
How about the gentlemen right in the back there?
Never let facts get in the way of a good argument.
My question is that the whole social structureif theres only one person in charge of management and community relations in a city like Richmond, that has to deal with a population of 150,000 and where there used to be 1,000 small, individual merchants that were making those same social and non-profit and charitable donations, that seems to be eliminated. So that there seems to be a big gutting, except whats done by outside philanthropy.
And my next question is, how much more stuff do we need? Isnt that a whole big issue? Isnt this all based on I need another 30 shirts to that I can support this whole deal? So I just want to know how much am I expected, as a citizen, to buy? Isnt that what its all driven on? To be American, we have to buy more stuff, right?
Just a quick not on the philanthropy thing, because Richard made this big point about how large they give. Actually, the Waltons themselves, and Walmart as a corporation, gives a much lower percentage of income and profits away to charity than businesses in general. I mean, its exceedingly low. Of course, since theyre big, it adds up to a lot of money. But it does equal a reduction.
They also had a historical tendencyand, as a way to save money, they never advertised in local papers. And finally, in the last couple of years, they finally figured out why local papers tended to editorialize against them. So theyve changed that strategy, and have started advertising big time. So people do learn.
Ill respond. And actually, I have some frustration myself in my local community, working with a community foundation, trying to get money out of Walmartits big bureaucracy and so forth and all.
But I do point out something that a lot of the criticsand I dont include Ken in this at all, because he is very fact driven. Some of the critics have made statements to the effect that the Walton family is obscenely wealthythey are in the top 10 or 15, 20 members of the Forbes 400 listand that somehow, they live these extremely opulent lives.
It is a matter of fact that the Waltons, for all their wealthat least, certainly it was true of Sam, and generally true of the familylived fairly modest lives, by the standards of multi-billionaires.
If we could all have those problems.
And it is true, which is to say they live well, but they dont have big jets and so forth to the same extent that mere hundred-millionaires have. And wheres the Walton fortune going to go? Where this money was built, supposedly. Lets say it was built on the backs of workers. I dont believe it for a minute. But lets say you do believe that. Where is the ultimate gain going to come from?
Now theyre creating the Walton Foundation. You may not like the way the Walton Foundation is spending its money, but it is spending it for some public purpose.
And this is exactly like the Rockefeller Foundation a hundred years ago, and another supposedly exploitive American, John D. Rockefeller. Its like the Ford family with the Ford Foundation. A lot of American wealth ultimatelyand maybe its because of tax laws, maybe its for all the wrong reasons, maybe these people are selfish bastards who are doing this just to get around the U.S. tax lawbut in the final analysis, a large part of that Walton money is going to end up helping people.
When Katrina happened, who was there before the U.S. government? Who was there before the storm hit? Walmart. When The New York Timesno friend of Walmartsays maybe we ought to re-name FEMA WEMA, the Walmart Emergency Management Agency, because they get there and the get the water there fast, that is something that I think we have to consider, if were going to value some of these external effects of these companies.
Its interesting that one of the things that hasnt been mentioned is China. As a collaboration of Walmart and exploiting Chinese workers for 25, 50 cents an hour with a police state, thats very interesting. Now, they may sign up with the state union, which they runthat, they dont object to. A state union that disciplines the workers.
No philosophical problems, maybe you have them. Heres my question. Democracy. Now the old muckrakersyou mentioned Ida Tarbell and the old liberals, not the liberals that we hear about herewere worried about the concentration of wealth because of its distortion of democracy. Concentration of wealth. Eighteen billion dollars? Wheres that money going to go? To the Right To Work Foundation? I dont know. Thats a distortion of democracy.
In the local area here, we see the big-box storesall up and down the Bay Area. The big-box stores, the big Walmarts are spending money to distort the democratic process. Our councils are bought by them, and thats democracy undermined by the concentration of wealth. That was the historic liberal argument against concentration of wealth. A distortion of democracy which goes on.
I dont see any liberals here, actually. What I see are a bunch of apologists for big wealth, and thats actually what the Independent Institute is. The more I see of it, the more I believe thats true.
But tell me about the police state. Tell me about exploitation of Chinese workers. Tell me about the distortion of democracy. How about that?
Well, since the Independent Institutes been raised, maybe Ill respond.
Yeah. You answer this one.
Its interesting that progressives, which basically came out of a neo-Puritanical ideology, essentially, are the advocates of concentrated state power. And if you look at the history of the concentration of state power, it always results in whats called corporatism. Because interest groups compete, control the police power to enrich themselves and their supporters. So the progressive era led to the corporate state in the United States.
Progressives continue to advocate centralization of power. You do. Progressives have been the major advocates of international intervention in the world. They were advocates of Prohibition. They were advocates of essentially the concentration of the warfare state in World War I, World War II, the Cold War.
Who created the CIA? Who created the IRS? Who created essentially every agency that we have today? The idea that progressivismor the traditional liberal idea as embraced by progressiveshas been a movement for justice is a great myth. Next question.
Are you going to answer his question about China?
Ill leave that to our panel.
Therere two ways a Walmart interacts with workers in China, potentially. One is as an employer itself, through retail stores in China (or in India, or anywhere else). The other and the more important way, and I think this is what this gentlemans getting atthrough buying goods from China that are sold in Walmart stores, mainly in the United States.
Workers in China make low wages. Now, whether they ought to be making 67 cents an hour or 52 cents an hour or $1.25 an hour, I dont know. Im an economic historian. If you go back to the cotton textile industry in New England in 1820, we paid children, child labor, in todays dollars, something like 25 cents an hour. Twenty-five cents an hour. Fifty years later the children were out of the factories, the women were still working in some of them, and they were making $1.50 an hour. By the early 20th century, theyre making $2 or $3 an hour.
Today those factories are gone. Those factories went first to South Carolina. Then they went to Japan. Then they went to China and Bangladesh, and other places in world. And this is part of progress. This is part of change. And with that, the workersthe people in New England who were exploited at 20 cents an hour in 1820now make $20 or $10 if theyre poverty stricken and work at Walmart, but theyre much better off. This is part and parcel of economic growth, and the process.
China is a poor country. Poor countries pay their workers little because thats all they can afford to pay them. I know nothing about Walmarts labor policies in China, other than I know that you would expect wages, and you would expect benefits, and you would expect working conditions to be quite different there than here, because of the lower level of productivity.
I do think one has to add that there is a little bit of irony about Walmart inviting communist party committees into their stores.
Well, I agree with that.
That gets back to my point about what is real corporatism.
Mr. Vedder, you seem to be trying to make the point that Walmart was really concerned about humanity and its people. And you talked about how when they had the foundation, they only focused on helping the people. And my question is if they really wanted the help, why wouldnt they just increase the wages and have less money for the foundation? They would help people, but sooner.
Walmart is a company that, I think, very appropriately, is trying to maximize its profits. Its maximizing its profits, and is paying, if you want to say market wages, rather than above market wages, thats what were talking about here.
Walmart doesnt have trouble getting workers. What is being suggested here is that Walmart should ignore where demand and supply curves cross. They should pay a wage above what it takes to get workers. They should do this as a charitable thing, as a charitable instinct.
This goes back to Adam Smith 220 years ago: the people at Walmart are profit maximizerscall them greedy, if you will. Lets accept that theyre greedy. But in the process of following their own self-interest, in maximizing their profit, they got to get people to buy their goods. And in doing it, they got to have cheap goods, lots of goods, and the goods of high quality. They do that. And by doing that, they make money. And when they make money, they are enriching themselves, but theyre richening society as well. Its the invisible hand at work. Thats all it is.
This is the first time Ive heard Walmart accused of having high-quality goods.
Has great stuff. Have you ever shopped shop there?
No one at Berkeley shops at Walmart.
But I actually think its important to come back and look at a piece of that economic history. Because theres a notion there that somehow, wages just grow on their own with productivity. There is a notion that Richard put out earlier: productivitys up, that goes down to workers wages.
Well in fact, if you look at any of that economic data in the last 20 years, the gap between wages and productivity, were about where we were 50 years ago. Wages arent going with productivity. What are the big reasons for that? Why the wage-productivity disconnect?
One of the parts of that is the decline in unionization. Those jobs in New England didnt miraculously start paying better until the workers got together, exercised their right to association, and decided they would bargain collectively. It was through that collective bargaining, through their right to association, that created a middle class in America, that created standards like the five-day workweek, the eight-hour day, the fact that we have a weekend. Most of us appreciate the kind of standards that were created in our society that give us the kind of living and middle class that we have here.
Walmart and other retailers going out there as business, trying to maximize profits, are pushing down on those standards. Its a rational response for people to respond and say, lets see what we can do to uphold those standards and stop that race to the bottom. Thats the place were in right now.
We have different views on those standards and where freedom is found. I have just as much a problem with a company spying me as a government spying on me. Some people think if a company does it, its okay, if a government does it, its wrong. I dont understand that distinction.
But you dont have a problem with the government spying on you.
No, I do have a problem with the government spying on me.
But youre in favor of the Labor Department spying on people, right?
Thats just silliness.
What if I dont report my labor statistics, what happens? Thats spying. Right?
Thats not spying on you.
Thats silly. As a society, we make common agreements about how were going to behave. We decided that in our family, were going to clean up after ourselves. A community sets rules on which its going to operate. Thats how societies work.
Some people think you could get rid of all those rules and things would be better. I dont think the world works that way.
And I think all of you, in terms of the lives that you have and appreciateyou love the roads that you drive on. You love the schools and the ability to have
Okay, you may not like the schools, but you like the fact that youve got an educated workforce. Im at a public university, which is one of the best universities in the world. We have all sorts of great and wonderful services, and we have them because we do that collectively better. We know the states that grow the fastest are the ones that invest in infrastructure. Theyre the ones that have the most taxes!
Thats whats makes our society work.
Ken. The point I mentioned before, Ken, is the solution that you have to your concern about Walmart as a monopoly is to impose a real monopoly by police force.
No! Thats silly.
Let me have one minute here. Just one. I just want to say I completely disagree with the factual basis of what he said.
What Ken said is, first of all, he said, wages are stagnant relatively, and productivitys growingtheres a growing disconnect. Now, you can find data that his friends in the labor movement put out that support that. But I think the quality government data that I look at says that this is total fiction.
Then he says, without any empirical evidence whatsoeverand of course, in fairness, there isnt much of a chance to provide it in this kind of environmentthe implication is that higher taxes lead to economic growth. That dropping money over this Berkeley for the university will lead to higher growth in California.
And Ive run regressions on that, and that aint so, folks.
If youve got proof, Id like to see it, because theres not an economist in the country that has shown any relationship between tax rates and economic growth.
Oh, bull. Absolutely bull! That is factually incorrect! And intellectually dishonest to say it.
Yeah, Id like to respond to the guy in the back there who was talking about police states. Certainly we all deplore the form of government in China, and we all hope they throw the commie bastards out.
But, that said, I been visiting India since the mid-1960s, and there has been an enormous change in the lifestyle, and wealth, and material goods availability of the people of India. Enormous. Entirely funded by the West, but, nonetheless, because of their terrific intellectual capital. And I am utterly confident the same is true of China.
India today has a larger middle class than the entire population of the United States. That was just simply not true 20, 30, 40 years ago.
So I think were seeing a general improvement in the world, as a direct result of globalization. And there just is almost no doubt about it.
And frankly, to say that thats not true strikes me as being fundamentally xenophobic and racist.
Is that your question?
No. I do have one question that Id like to ask. Does anybody up there know of any actual surveys on the job satisfaction amongst employees of Walmart, when compared with the employees of other big-box retailers, the employees of small retail establishments, the employees of the grocery stores and so on?
The only good data is turnover data, and Walmart, and other big-boxes are all about the same place, and grocery stores and Costco are much, much lower. So if people are voting with their feet, that tells us something.
Ive seen a couple of polls done of big-box workers, particularly Walmart workers, that show a relatively high level of job satisfaction. It isnt 100 percent or anything, but its relatively high.
But what I havent seen, to get to your specific question, is it broken down store-by-store. It would be very useful to have a Home Depot, versus Best Buy, versus Walmart, and so forth. I havent seen it either.
Human subjects would never let us do it.
This will be the last question, the gentlemen right in the back.
Id like to respond to one thing you just brought up. Forbes does a very good job of collecting data on corporations. One of the things that they do every year is take a poll of those companies that are the best to work for. And they go in, and they poll the workers. And Walmart, as far as I know, has never made it. Theyre not very well revered on that list by their own employees. I only say that because I read Forbes.
Ive worked with retailers for about 30 years in data processing. And I had an opportunity to work for a lot of small retailers. Im concerned with Walmart and the social capital aspect of what happens in small communities when a big-box comes in and displaces the stores that have a lot of the community leaders. They are entrepreneurs, theyre also big contributors to the community.
Its my understanding that locally owned businesses actually generate about three times as much as chain businesses to the economic well-being of communities in which they participate.
I am a very strong supporter of local business, and also of the free enterprise system. When Walmart can come into Richmond and get over $6 million in subsidies to move into Hilltop Mall, I am opposed to that kind of thing, especially in Richmond, where that $6 million could go much further with investing in smaller businesses that would help the community as a whole. Thats all I had to say. Thank you.
Just as a question. would everyone agree that
I think thats a point of agreement.
eminent domain should be abolished?
Well then, there you have it. I mean, theres the camels nose. Anyway, did you want to respond to what was said?
No. I mean, Id agree entirely with what he said. I think we all agree on the use of corporate subsidies issue. And I think wed all agree that Walmart shouldnt press governments to use eminent domain. We may disagree on can there be some occasions where in terms of a community, it makes sense. We can disagree on that.
Yeah. I think wed all agree on making that some occasion pretty small.
Anything you want to say?
No, I would end on a positive note by largely agreeing with Ken on that last statement.
Okay, the very last question that Im going to ask is sort of a two-part question. The first part is, since we talked about living wages and minimum wages and so forth, if X firm, store, business is told that they must increase their wages, what happens to the most marginal workers?
They lose their jobs.
Well I meantits for the panel. Thats the first part of the question.
Let me finish. The second part of the question is
You go first, and Ill go.
if you think of the idea of a living wage, or a minimum wage, what Im throwing on as a questiondoesnt this really mean that it is legal to hire someone, say, lets put it at $10 an hour, $10 and up. It is legal to hire someone at $0, to work for free, to volunteer. It is legal for that person to pay someone to work in some sort of venture.
So, essentially, between greater than 0 and less than $10, thats a crime, and the police can come and get you. So thats my two-part question.
Well, what happens to the marginal workers when you put in high minimum wages, living wages, call them what you will. They are the workers that are the ones who are obviously going to be impacted in an adverse effect. Theyre the ones with the less skills, the smallest skills. Theyre the ones who may add $8 or $9 worth of output to the firm every hour. And when you tell them you got to pay them $10, we just wont hire them, well reduce their hours, well reduce their benefitsan unintended consequence, by the way, of some of thiswe wont train them. So they will be the ones that take it on the chin.
The late Milton Friedman, in quite a different contexts, speaking on the minimum wage law 30 or 40 years ago, said the minimum wage law was the most anti-black law on the book because blacks tended to have a disproportionate number of relatively unskilled workers who were trying to get on that job ladder to success. That initial job that you need to get to success. And the minimum wage tended to hurt them more than others. And my own research would tend to support that.
As to the second part, well, I better be quiet here, because I havent let Ken respond.
The recent research over the last 20 years has actually found that that traditional economic view of minimum wages was wrong. And I know, you know, a lot of people dont like letting facts get in the way of their theory, but that is in fact that case.
And thereve been lots of studies looking at fast food restaurants, others on both sides of the border when a minimum wage goes in one state and not the other.
When you look at this research, you would expect okay, where you raise the minimum wage, you should have fewer jobs. In fact, they found either no effect, or in some cases, they had a small positive gain from the minimum wage.
So how do you explain that? Part of that is efficiency wage gains, as I mentioned earlier, and part of it is simply, in those kinds of jobs, you tend to have lots of vacancies because its harder to find workers. And so it turned out, at the small levels in which its been done, minimum wage has been more of a vacancy killer than a job killer.
Is there a level at which you could raise the minimum wage that it would kill jobs? Of course there is.
And I know, Richard keeps saying, well, if you set it here, why not set it there? The reality is, theres a big difference between here and there. And rational people can make these measures, look at the impacts, and decide, are we too high, or are we too low? There is sort of a Goldilocks approach to these sorts of things, and thats true with all kinds of public policy. The idea that you as community decide against one thing, doesnt mean that youre going to go in another direction.
These arent just camels noses under tents. The minimum wages value has gone up and down in the country, based on different economic conditions and different political decisions at different times. And thats what happens in a normal course of public policy debates. Thats what democracy, again, is all about. So I think its important to put aside some of the ideological views, look at some of the real research and what were finding these days, and think, okay, what does that mean? And what does that mean for the kinds of policies that we create?
Okay. That will complete our program. I want to thank both of our speakers.
Those of you interested in learning about labor economics, let me know. Ive got a few things Ill show you. The book that were featuring tonight is the one by Professor Vedder, called The Walmart Revolution, and there are copies upstairs. Hed be delighted to autograph copies, if youre interested. I want to thank you all for joining with us. I want to thank both of our speakers for excellent presentations, especially in a debate form. And thank you again. We hope to see you next time.
Well, I think we had a lively discussion, dont you?
END OF FORUM
1. MINIMUM WAGES: At the debate, claims were made regarding price controls in labor markets, such as minimum wages and living-wage rates. For many years, it has been a matter of conventional wisdom among economists that the minimum wage increases unemployment, especially for the least skilled and poorest people. Were this not the case, there would be no logical reason why the minimum wage could not be set at $10, $100, or $1 million per hour. In effect, economists have viewed the minimum wage as a form of labor-market protectionism which serves to restrict the supply of workers by eliminating by force from the market those who will work for less.
In this regard, historically defenders of the minimum wage have not disputed the increased unemployment effects of the minimum wage, but argued that on balance those who remained working were better off. In other words, such a view held that the higher incomes created by the minimum wage for those with jobs offset the lower incomes of those who lost jobs, as a result of the minimum wage, and if the poorest were unemployed, this was in the public interest and could be handled by having them go on welfare.
However, in our recent debate, it was claimed that modest increases in the minimum wage will have no impact whatsoever on employment. As was noted in the debate, this claim is based on a 1994 paper by economists David Card and Alan Krueger that alleges that a 1992 minimum wage increase in New Jersey had no effect on employment rates in fast-food restaurants.
What was not stated is that this paper runs counter to more than a hundred studies of virtually all other economists before and since. Here for example is a note on the influential blog of Harvard economist Gregory Mankiw, former Chairman of the Presidents Council of Economic Advisors, in which he links to some of the studies that refute the Card/Krueger claims:
Here, for example, is a study of the first-in-the-nation Massachusetts minimum wage law, which applied to women only, and resulted in reduced employment of women, increased employment of men and of capital, and eliminated slack time for women workers:
Minimum Wages For Women Only, by Clifford F. Thies
Here is an article by our Senior Fellow, the economist Robert Higgs, that discusses the fallacies of the Card-Krueger study:
And here are a couple articles that discuss the fallacies of the minimum wage:
Minimum Wage-Maximum Nonsense, by Benjamin Powell
Low-Skilled Workers Lose with Higher Minimum Wage, by Benjamin Powell
Incidentally, the definitive and award-winning book on the actual effects of government policies on employment and unemployment is the following:
OUT OF WORK: Unemployment and Government in Twentieth-Century America (updated edition) By Lowell E. Gallaway and Richard K. Vedder (New York University Press)
2. GOVERNMENT POWER: Also at the debate, claims were made about the democratic effects of government power. However, studies by economists, historians and other scholars show that instead of empowering the citizenry, the bureaucracy and interest-group politics of government power redistribute wealth and power from the many to the few, with costs, risks, and liability redistributed from the few to the many. Public choice economists have shown that in the name of democracy and social justice, government regulatory measures concentrate monopoly economic power as they are used to cartelize markets for the benefit of the most politically privileged economic interests. In other words, economic regulation in practice tends to create corporatism, not decentralization or empowerment.
Here is a sampling of studies in this regard by our Senior Fellow Robert Higgs:
Crisis and Quasi-Corporatist Policy-Making: The U.S. Case in Historical Perspective, by Robert Higgs
Fear: The Foundation of Every Governments Power, by Robert Higgs
Quasi-Corporatism: Americas Homegrown Fascism, by Robert Higgs
Here also are some key books on the subject:
3. SOCIAL SERVICES: An additional question that arose during the debate was whether government provision of schools, roads and infrastructure, health care, welfare, insurance, criminal justice, and other areas are effective, just and even crucial for economic and social welfare. Again, the scholarship overwhelming shows that government power invariably serves interest groups and creates enormous waste, corruption, incompetence, and misery for the public, especially the most disadvantaged.
Here is a sampling of books that discuss this point regarding issue after issue:
THE VOLUNTARY CITY Edited by David T. Beito, Peter Gordon and Alexander Tabarrok
STREET SMART Edited by Gabriel Roth
RE-THINKING GREEN Edited by Carl P. Close, Robert Higgs
AMERICAN HEALTH CARE Edited by Roger D. Feldman
PLOWSHARES & PORK BARRELS By Ernest C. Pasour Jr. and Randal R. Rucker
THE ACADEMY IN CRISIS Edited by John W. Sommer
4. EMINENT DOMAIN: Finally, at the debate, there was near unanimity in opposing eminent domain. The recent U.S. Supreme Court decision in Kelo v. New London upholding the use of government power to expropriate the property of others has underscored the enormous harm and injustice involved.
In this regard, you may find the following of special interest:
Eminent Domain: Abuse of Government Power?, with Timothy Sandefur and Steven Greenhut
Private Property in Peril, by William J. Watkins Jr.
Eminent Domain Roulette, by Benjamin Powell
Supreme Court Ruling Opens the Door to Abuse, by William F. Shughart II and Michael Reksulak
The Mythology of Holdout as Justification for Eminent Domain and Public Provision of Roads, by Bruce L. Benson