June 20, 2006


Caption: This gentleman wears sweatshop-free apparel...or he wears nothing at all.

It’s been so long since El Cabrero wrote about Wal-Mart that they’re probably feeling neglected. So here goes…

A recent issue brief by the Economic Policy Institute takes a critical look at the retail leviathan’s claims that consumers benefit from low prices more than workers are hurt by low wages. According to EPI, the main point isn’t whether Wal-Mart is good or evil but rather “whether the economic benefits provided by Wal-Mart (and other big-box retailers) can be preserved even if their labor compensation is dramatically improved.”

The answer, in brief, is yes:

Wal-Mart could raise wages and benefits significantly without raising prices, yet still earn a healthy profit. For example, while still maintaining a profit margin almost 50% greater than Costco, a key competitor, Wal-Mart could have raised the wages and benefits of each of its non-supervisory employees in 2005 by more than $2,000 without raising prices a penny.

The study also questions claims made by Global Insight that Wal-Mart saved consumers $263 billion. This claim was based on the Consumer Price Index, although 60% of the items that compile the CPI are things like housing, health care, and transportation, which Wal-Mart doesn’t sell. These are also the things that are increasing the most in price while “the prices that are reduced through Wal-Mart’s expansion constitute an ever shrinking share of American families’ expenditures.”

Wal-Mart essentially gives people the ability to buy food, apparel, household goods, and furniture at reduced prices…By contrast, the expenditure shares on health care, housing and transportation for families have gone up over time. These cannot be bought at Wal-Mart, yet they constitute an ever-growing share of American household expenditures. In short, the benefits from the same price effect in Wal-Mart’s product areas are shrinking over time. The real pressures on family income are coming from items that can’t be bought at Wal-Mart. These products and services can, however, be bought with higher wages.

In the past, low wage earners have depended on government programs such as Medicaid to help make up the difference from low wages and benefits, but this will be more of a stretch given the cuts to these programs by the Bush administration and its allies in Congress. The downward pressure on wages combined with cuts to the safety net create a scissors effect for many working families.

Wal-Mart could do better by its workers without losing its profitability. And the impact of this would spread to many other workers whose wages have been depressed by competing with it.


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