The Wal-Mart Low-Wage Model Broke the U.S. Economy

by Gregory N. Heiris

Walmart_2_croppedWal-Mart’s nickname should be Inequality Inc.

Consider this:

• Six heirs of the company’s founder control more wealth than 41.5 percent of all American families combined—or 48.8 million families.

• From 2007 to 2010, the wealth of the six Wal-Mart heirs went up from $73.3 billion to $89.5 billion while the country’s median family wealth plummeted by 38.8 percent.

No, what’s good for Wal-Mart is not good for America.

As the Walton family accumulated its fortune over decades, our country became more economically polarized and a culture of discontent began brewing.

But we didn’t reach a boiling point until Occupy Wall Street made inequality a major political issue in the months before the 2012 presidential election. Thanks to the Occupy movement, our political lexicon now defines the ruling elite like the Waltons as the “1 percent,” who are using their economic and political power to amass a greater share of the economic pie, and the rest of us as the “99 percent,” whose wages are stagnating and falling; pensions are inadequate or nonexistent; employer-provided health care is disappearing, and union representation is at its lowest level in 97 years.

Wal-Mart and Our Declining Standard of Living

The low-wage Wal-Mart business model has a lot to do with our declining standard of living, according to a recent report by the Democratic staff of the U.S. House Committee on Education and the Workforce.

The 19-page report, “The Low-Wage Drag on Our Economy: Wal-Mart’s low wages and their effect on taxpayers and economic growth,” tells the story of how the retail giant has profited by paying its employees paltry wages and passed along a hefty tab to taxpayers to cover worker benefits, including health care. The report updates the committee’s excellent 2004 study, “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart.”

“While employers like Wal-Mart seek to reap significant profits through the depression of labor costs, the social costs of this low-wage strategy are externalized,” the report says. “Low wages not only harm workers and their families—they cost taxpayers.”

The report takes a look at Wisconsin to get an idea of Wal-Mart’s cost to taxpayers. In the state, Wal-Mart has 100 stores, including 75 Supercenters that employ about 300 workers each. Each Wal-Mart store with 200 employees costs taxpayers $420,000 a year, according to the report.

Many Wal-Mart employees rely on Medicaid for their health care because they can’t afford to pay for the company plan. Based on state Medicaid data, which tracks the number of beneficiaries by employer, the report estimates that Wal-Mart workers cost Wisconsin taxpayers up to $904,542 per year, or $3,015 per employee. The bill rises to $1,744,590  ($5,815 per employee) once other government benefits (e.g., child care subsidies, the Earned Income Tax Credit, school meals, nutrition assistance, Food Stamps, low-income energy assistance and housing help) are factored in.

Because of insufficient access to comparable data, the report fails to come up with a nationwide estimate of the cost to taxpayers. But clearly, as the country’s largest employer with 1.4 million workers, Wal-Mart imposes a tremendous financial burden on our public sector.

“Wal-Mart is the nation’s largest private-sector employer, yet they pay such low wages that many of its workers are unable to provide their families with the necessities of life,” said Rep. George Miller (D-Calif.), senior Democrat on the committee. “The labor policies of Wal-Mart, and those of companies that emulate its low-road approach, end up leaving taxpayers holding the bag.”

A Business Model Based on Inequality

Yet, what’s worse is the low-wage model itself–and its impact on our economy. Wal-Mart, of course, has become an economic powerhouse by keeping its wages low. As noted by the report, its workforce is larger than the populations of 96 countries. Its total revenue of $469 billion in 2012 was more than that of Norway.

The Wal-Mart business model is based on inequality. The company’s policy of anti-unionism, low-wages, part-time employment and poor benefits is the polar opposite of that of many employers of the post-World War II era.

So, Wal-Mart’s emergence as our economy’s business model reflects the growing economic divide that began in the early 1970s, when productivity growth and wages stopped moving up together. Since then, employers have increased their share of the fruits of productivity by holding down wages. And the consequences are devastating for working families.

In the third quarter of 2012, corporate profits were $1.75 trillion, the greatest share in history. For the typical U.S. family, the 2000s were a “lost decade” in which incomes dropped. And the top 1 percent pocketed 93 percent of the income gains of the recovery. Income inequality is at its highest since the Great Depression.

As the report points out, the decline in wages has mirrored the erosion of organized labor’s power. The report describes the revival of the labor movement as vital to the growth in the share of our country’s income by workers in the future. The government can encourage that process by changing labor law to make it easier for unions to organize new members, and unions themselves should move away from the service model and pour a significantly greater share of their budgets into organizing.

Government-supported measures to stimulate wage growth, apart from encouraging unionization, include hiking the federal minimum wage, creating jobs through infrastructure development, fighting wage discrimination against women and addressing high unemployment.

Raising the minimum wage to $10.10 an hour would add $33 billion to the gross domestic product and create 140,000 new jobs within three years, according to the report. Higher wages would in turn, of course, stimulate an economy that for most people isn’t working.

Wal-Mart is an economic beast that must be tamed.

Gregory N. Heires is senior associate editor at Public Employee Press, the official publication of District Council 37, which represents 120,000 municipal workers and 50,000 retirees in New York City.  He blogs at The New Crossroads, where this post originally appeared.

7 Responses

  1. […] But we didn’t reach a boiling point until Occupy Wall Street made inequality a major political issue in the months before the 2012 presidential election. Thanks to the Occupy movement, our political lexicon now defines the ruling elite like the Waltons as the “1 percent,” who are using their economic and political power to amass a greater share of the economic pie, and the rest of us as the “99 percent,” whose wages are stagnating and falling; pensions are inadequate or nonexistent; employer-provided health care is disappearing, and union representation is at its lowest level in 97 years. Read the source story here. […]

    • Another union mouthpiece that doesn’t comprehend basic economics and how market forces drive our economy. Public sector unions, whom Gregory N. Heries represents, are at the heart of the destruction of the US economy. Their blotted benefits (and now wages) are out of line with private sector jobs. Government employees are the fastest growing work force in the Country. Higher minimum wages are job killers, they raise unemployment levels and stifle business growth. Raising minimum wages harm the very people they are trying to help. They are designed with the self-interest of unions in mind; by raising the floor, union employees hope to benefit by demanding higher wage and benefit packages. Minimum wages are paid for entry level positions. It allows employers to hire non-skilled or low skilled employees where they learn on the job and gain experience. These people will never be hired if employers are force to pay more than the market will bare. The unemployment rate among unskilled young people and minorities is nearly twice the rate of the rest of the US. There is a reason why people shop at Wal-Mart – price. Beating up on Wal-Mart is just another example of class warfare on successful family business.

  2. Wouldn’t higher wages drive up the cost of goods? And thereby reducing the buying power of “everyday Americans?” Higher minimum wage would only benefit those who are currently close to that rate, and only if the increase didn’t drive inflation, in which case nearly everyone would be worse off, not better.

  3. […] The Wal-Mart Low-Wage Model Broke the U.S. Economy […]

  4. i don’t remember hearing that wal-mart rakes folks from the street and forces them to work there. anyone that doesn’t like the wage program has the right to find work elsewhere. if they can’t, they should be happy that wal-mart wants them.

    • With that much power…………Time to make a switch. Walmart as of 1 august 2013 raises all employee’s mim wages to $12.00 the rest stay where it is………that tame the pig!!

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