Walmart | Normative Narratives

December 3, 2013
by bzupnick Leave a comment

Economic Outlook: When Gauging Support for Raising the Minimum Wage, Poll its Biggest Opponents

Trend: Minimum Wage -- Real and Nominal Value, 1938-2013

There has been a strong push this holiday season (really dating much farther back) by a variety of labor groups seeking higher minimum wages. Specifically, Walmart employees, Fast-Food Workers, and most recently low-level financial sector employees have taken to the streets to make their demands for “livable wages” heard.

As one who believes in the positive externalities of a more egalitarian society, as well as a proponent of collective action, I am happy to see people using the tools at their disposal to overcome power-asymmetries that have persisted for decades. It would appear that I am not alone in this sentiment–according to Gallup polling, 76% of Americans support raising the minimum wage to $9/hr (69% support raising the minimum wage to $9/hr and indexing the minimum wage to cost of living increases).

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Furthermore, the main fear associated with raising minimum wages–that it will lead to higher unemployment–has been debunked:

The idea of fairness has been at the heart of wage standards since their inception. This is evident in the very name of the legislation that established the minimum wage in 1938, the Fair Labor Standards Act. When Roosevelt sent the bill to Congress, he sent along a message declaring that America should be able to provide its working men and women “a fair day’s pay for a fair day’s work.” And he tapped into a popular sentiment years earlier when he declared, “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

Support for increasing the minimum wage stretches across the political spectrum. As Larry M. Bartels, a political scientist at Vanderbilt, shows in his book “Unequal Democracy,” support in surveys for increasing the minimum wage averaged between 60 and 70 percent between 1965 and 1975. As the minimum wage eroded relative to other wages and the cost of living, and inequality soared, Mr. Bartels found that the level of support rose to about 80 percent. He also demonstrates that reminding the respondents about possible negative consequences like job losses or price increases does not substantially diminish their support.

It is therefore not a surprise that when they have been given a choice, voters in red and blue states alike have consistently supported, by wide margins, initiatives to raise the minimum wage. In 2004, 71 percent of Florida voters opted to raise and inflation-index the minimum wage, which today stands at $7.79 per hour. That same year, 68 percent of Nevadans voted to raise and index their minimum wage, which is now $8.25 for employees without health benefits. Since 1998, 10 states have put minimum wage increases on the ballot; voters have approved them every time. But the popularity of minimum wages has not translated into legislative success on the federal level. Interest group pressure — especially from the restaurant lobby — has been one factor.

The social benefits of minimum wages from reduced inequality have to be weighed against possible costs. When it comes to minimum wages, the primary concern is about jobs. The worry comes from basic supply and demand: When labor is made more costly, employers will hire less of it. It’s a valid concern, but what does the evidence show?

For the evidence, lets turn to Dr. Krugman, who succinctly explains the evidence against this valid concern, and how “good” this evidence is:

Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.

It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.

When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.

So a minimum-wage increase would help low-paid workers, with few adverse side effects.

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But what do these “egg-heads”, in their “ivory-towers” know? They are out of touch with the real world! The person who suffers from minimum wage increases is not the academic, or even the large corporation. It is the small business owner who suffers–Mom and Pop! Well, Gallup polled small business owners on their thoughts of minimum wage increases, and responses were not as overwhelmingly negative as one would think:

They were also polled on the effects of a minimum wage increase on how they invest back into their business:

The majority of small business owners responded they would not reduce their current workforce (64%) or reduce worker benefits (60%) if the minimum wage was increased. The largest negative effect would be a reduction in capital spending (38%). However, in the context of a divergence of worker compensation from productivity, and a declining share of income going to labor (in favor of capital), perhaps such a re-balancing is not such a bad thing.

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Small business owners are not thrilled about the prospect of a minimum wage increase–they are not expected to be. However, the fact that nearly half support raising the minimum wage says something about small business owners.

Perhaps they recognize peoples purchasing power is tied to their wages, so increasing wages will eventually lead to higher sales (especially considering minimum wage employees have a much higher marginal propensity to consume than wealthier people). Or perhaps these people are simply more in touch with what happens in the communities they live in than their big-business contemporaries. They know people living on the minimum wage aren’t lazy people waiting for a government handout; they are their friends, family, and customers. Perhaps they believe that more egalitarian communities are friendlier, safer places, and are willing to pay a little extra in order to achieve that goal.

Increasing the minimum wage is overwhelmingly popular, and more popular among small business owners than one would expect. Furthermore, it would save billions of dollars in Welfare programs by ending an implicit subsidy for businesses who pay non-livable wages and stimulate the economy by redistributing income to people who are more likely to spend it.

The time to act has come; people are literally taking to the streets. It is also important to index the minimum wage to cost of living increases, so we do not experience the declining real minimum wage we have had for the past 4 decades. Indexing also avoids a political battle every-time the cost of living changes (which it constantly does).

I for one am interested and excited to see the myriad benefits that decreasing poverty rates and reversing the trend of increasing income inequality have on American society as a whole.

November 15, 2013
by bzupnick 2 Comments

Green News: Walmart, Wages, Emissions, and Personal Accountability in a Democracy

Original Article:

Walmart is one of the biggest and fastest-growing polluters in the nation, despite the company’s 2005 pledge to become an environmental leader, according to a report from the Institute for Local Self-Reliance (ILSR).

The retail giant emits 45 million metric tons of CO2e (carbon dioxide equivalent), slightly more than Target, at 42 million metric tons, and significantly more than Costco, at 16 million metric tons, according to the report.

“The scale of Walmart’s energy efficiency and renewable power measures is not up to the scale of their business or their growth,” Stacy Mitchell, the author of the report, told Al Jazeera. “They been placing solar powers on the rooftops and getting some wind power and so on, but Walmart only derives 4 percent of its energy from renewable energy sources.”

“This is a business model that is built on these far-flung distributors and goods that are trucked all over the country [and shipped all over the world],” Mitchell said. “There are fundamental aspects of Walmart’s business model that are at odds with sustainability.”

Walmart spokesperson Christopher Schraeder told Al Jazeera that the company is “working hard every day to find solutions to the most pressing sustainability issues,” and that has “ambitious sustainability goals to improve our operations, increase fleet efficiency, source locally and sell more sustainable products.”

Mitchell acknowledged that significant change in emissions will have to come through legislation, not just from companies becoming more ‘green.’

But with Congress more divided than ever, that’s not likely to happen soon, especially when companies use their financial resources and lobby members of Congress to block environmental protection measures.

Through the Walmart Stores Inc. PAC for Responsible Government, Walmart has given more than $22 million to politicians who are opposed to legislation that would regulate emissions and promote climate change.

In the 2008 elections, 80 percent of Walmart’s senate campaign contributions went to people who blocked the “cap-and-trade” bill, which would have reduced carbon dioxide and other greenhouse gas emmissions across the U.S. economy. In the 2012 elections, 70 percent of donations went to people who supported the Keystone XL pipeline

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Walmart has gotten a bad rap over a number of issues, and in the past I have been critical of Walmart’s business model as well. But I was still fair in my analysis back then; the two main issues Walmart receives flack for–employee compensation and emissions–need to be addressed by government policy:

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1) Employee Compensation: This is as clear cut an example of policy failure there can be. Walmart, by paying its sales associates an average of $8.81 cents / hr, is not breaking any laws. This comes out to a yearly income of a little over $15,000, placing a large burden on the social safety net:

On the flip side of this, it costs the nation an estimated $1 billion a year in social safety net use. Essentially, the U.S. taxpayer is subsidizing Walmart’s low wages, which systematically produce full-time workers living below the poverty line.

It should raise a red flag that the same ideology opposed to safety net policies also tends to be against higher minimum wage legislation as well. It used to be that if you worked hard you could live a comfortable middle-class life and have enough to invest in a better future for your children. With the current minimum wage, the American Dream is no longer a reality for a large number of hard working but less-skilled Americans.

The plan to increase the federal minimum wage to $10/hr (and thereafter tying it to a cost of living metric such as the CPI) beginning in 2014 (I believe the plan is to phase it in over three years) is a good start. This could also have the effect of pushing up non-minimum wage compensation as well, as employers looking for more skilled labor will have to compete with higher minimum wage employers. Such changes are all the more important in the context of rising inequality and falling median incomes (which are at their lowest level since 1995).

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2) Emissions:

As the report states, “significant change in emissions will have to come through legislation, not just from companies becoming more ‘green.’”. Corporate social responsibility (CSR) is a nice idea, but it only changes things at the margin. As with employee compensation, the real driver of change must come from carbon tax / cap-and-trade legislation. With proper legislation in place, CSR gives way to more enforceable corporate accountability.

Another important element of environmental sustainability should come from tax incentives for using local producers. This legislation would be less politically contentious than carbon taxation, but would have a huge impact on emissions. According to the ILSR report, Walmart’s carbon emissions disclosure does not include emissions from international shipping. However, this is a large component of Walmart’s competitive advantage, finding the lowest cost producers, which are always in developing countries due to lower labor costs. Since there is no taxation on emissions, as long as the price of production + transporting from the developing world is lower than the price of producing domestically, retailers such as Walmart have little incentive to choose the later.

By evening the playing field through tax incentives, the benefits would be twofold: 1) stimulating the U.S. economy through more local production and 2) lower emissions due to less transportation from production site to the store. These tax incentives could be paired with carbon tax / cap-and-trade revenue (to fulfill the revenue-neutrality legislative condition the G.O.P. lives by), further tilting the playing field towards lower emission American production.

Walmart’s own CSR initiatives have led to an increase in American production, appropriate legislation can (literally and figuratively) bring these changes home.

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I would like to take this opportunity to also highlight an example of the political economy definition of a “collective action problem”:

A collective action problems occurs when a large group of people would be better off with a change, but that change does not occur because the gains to each individual in that large group are small, while the losses imposed by the change on a small group are large. In this case, the American public would be better off with regulations on GHG emissions, but these improvements in environmental quality are hard to quantify and will occur only in the future. In contrast, the cost to the small group (Walmart) is large and immediate–having to pay for emissions. Therefore, it is rational for Walmart to use it’s resources ($22 million in this case) to lobby against these changes.

But there is strength in numbers and in public opinion, particularly in a democracy. While civil society may not be able to raise money to counter Walmart’s lobby, it need not do so to overcome the collective action problem. This comes down to an issue of social accountability. In a democracy, we can vote for lawmakers who will stand up to lobbies for the greater public good.

The fact that these politicians are rare-to-non-existent is partially due to legislation (lobbying money is allowed to influence lawmakers), but mainly it is due to a failure of social accountability. People are either too busy or too cynical to vote, with the aggregate outcome of a legislature that represents the interests of it donors rather than its constituents.

Democracy is powerful, voting is powerful. It is why we see wars fought in the name of democracy; people are willing to die for the rights we as a nation largely take for granted. Our ability to move forward as a nation whose laws represents the interest of the general public hinges on overcoming cynicism in the democratic process.

Finger-pointing and playing the blame game are not the answers. Education / information dissemination is an important element of overcoming collective action problems, and is largely why I do what I do here at NN. But ultimately the responsibility lies with each and every U.S. citizen. Belief in the power of the democratic process is the only way to return to the more egalitarian America of yesteryear.

May 16, 2013
by bzupnick Leave a comment

Transparency Thursday: In Response to the Bangladeshi Factory Collapse, Who is Responsible for Ensuring Safe Working Conditions?

The collapse of the Rana Plaza Complex in Dhaka, Bangladesh was a tragic event which has resulted in the deaths of more than 1,100 people. If there is any silver lining to this horrific event, it is that more attention is being paid to factory safety conditions and workers rights in Bangladeshi factories and in the garment industry as a whole. Bangladesh is the second largest producer of apparel globally after China.

The origin of goods and a consumer demand for sustainable production processes has its origins in the food production industry. The trend has expanded into the garment industry in recent years. When garment producers first came under scrutiny, much of the focus was on workers rights. “Sweatshops” and child labor became lightning-rod issues. While these issues have not been fully eliminated, progress has been made—the “spotlight effect” can greatly change the actions of large MNCs. The new issue on consumer and producer agenda’s is factory safety conditions. How best to address this issue is open for debate.

In the past week, many European and a few American clothing producers have agreed to sign onto a legally enforceable plan which mandates; “rigorous, independent factory inspections, and helping to underwrite any fire safety and building repairs needed to correct violations.”

An alternative approach, championed by The Gap, seeks a watered down version of the plan without the legally binding aspect. “Under Gap’s proposal, if a retailer were found to have violated the agreement, the only remedy would generally be public expulsion from the factory safety plan.

“The U.S. is quite litigious,” said Bill Chandler, a Gap spokesman. “We put forward specific proposals that we thought would bring other American retailers into the fold. We thought it would be a step forward and would turn it into a much more global agreement.”

According to Gap, its plan is not to exonerate companies from having a legal obligation, but rather an attempt to bring many more companies on-board. Admittedly, the spotlight-effect of public expulsion from such a plan would probably be very costly for a clothing producer, leading the company to seriously consider internalizing the cost of bringing its factories up to code.

Walmart is planing on its own internal safety audit system,which is likely to be rife with conflicts of interest. Walmart’s reasoning is efficiency, it does not believe a global mechanism can work efficiently as there will be lots of bureaucracy involved.

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I believe a large element of the picture has gone largely unnoticed in the aftermath of this tragedy—the role of Government on working conditions. What exactly are Bangladeshi factory safety-standards like? How do they compare to other developing / developed countries? If the rules on the book are not adequate, then requiring MNCs to underwrite getting up to code will not fix anything. If the rules are adequate, and are simply not enforced properly, then requiring producers to pay for bringing factories up to code should theoretically work.

The Bangladeshi government response has been significant. “This week the Bangladesh government said it had closed 16 garment factories in Dhaka and two in the south-eastern port city of Chittagong for safety reasons after the collapse of Rana Plaza.

“These factories will only be allowed to reopen after they have made structural and safety improvements,” a senior official of the labour ministry said. “Every factory in the country will be inspected as part of a government initiative to ensure safety.”

There are concerns that corruption and political influence may allow owners to evade regulations.”

Again, is the issue the laws in place, or how they are enforced? Actions by the Bangladeshi government make it seem like it is an enforcement issue. If this is the case, the issue likely reaches beyond apparel and is one of corruption and lack of transparency (and is likely government-wide). Is the movement towards stronger enforcement authentic, or is it merely an attempt to appease clothing producers until media attention dies down?

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Ultimately, a mixed approach will need to be taken. Pressure has to continue to be put on the Bangladeshi government to enforce better safety conditions for workers. In a country with over 4 million garment workers, this is an important step in protecting the rights of Bangladeshi workers.

Pressure can also be put on MNCs by consumers. Consumers can “shop with their wallets”, but will they? I had a conversation with a co-worker, and we both felt that when considering the food and garment industries, it would be harder to pass the extra cost onto the consumer in the garment industry. Our reasoning was that when it comes to food, people are willing to pay extra because they believe they are putting something better into their bodies—it is a mutually beneficial relationship. When it comes to garments, the benefits to the consumer are diminished, far off, and often forgotten except in the direct aftermath of events like the one this article is based on.

So MNC will perhaps have to make up more of the cost on this one. MNCs can also “vote with their wallets”. By shifting production to other countries, the Bangladeshi government will understand the value of having a reasonable minimum standard for worker safety and workers rights. MNCs can pressure the Bangladeshi government to better enforce safety regulations (if the cost cannot be passed onto consumers, perhaps part of it could be shared with the Bangladeshi government). The government’s role cannot be overstated in this issue—without good governance any plans by MNCs will be hampered.

As far as what MNCs can/should do, I think that a more inclusive, less binding plan that relies on the spotlight-effect is more practical even if theoretically less effective. What good is the legally binding plan if the majority of producers do not sign onto it? If a less binding plan got the majority of garment producers on board (as opposed to just a handful), those producers would have a more unified voice. The Bangladeshi government would have less options and ultimately would have to appease MNC s (since such a large portion of the Bangladeshi economy is based on textile exports) by helping enforce stricter factory safety standards.

A more recent Bangladeshi factory fire, in which 8 were killed, highlighted that there is indeed much more work to be done.

April 4, 2013
by bzupnick 4 Comments

Transparency Thursday: Wal-Mart, a Microcosm of the U.S. Economy

Walmart is the nation’s largest retail employer. Walmart’s competitive advantage is no secret; by providing goods at prices lower than competitors, it has been able to capture market share by driving competitors out of business. This translates into savings for customers. But looking further into the specifics of how Walmart keeps its costs down, it may also translate into higher costs for consumers in the long run. As is often the case, the “devil is in the details”.

Take, for example, the fact that Wal-Mart systematically underpays their employees. The average Walmart associate makes $15,500 per year ($8.81 per hour). Walmart’s CEO Mike Duke will bring home over $23 million in salary and performance based benefits in 2012, a whopping 1034:1 CEO to employee pay ratio (by far the highest, the next being Target at 597:1, also this figure is based on a median Wal-Mart salary of $22,400, so based on which figure you use the ratio could be much higher). It is estimated that it would cost Wal-Mart shoppers on average another $0.46 per visit to if the company offered a minimum wage of $12 / hour.

Next, consider environmental degradation. One common way to keep costs down is through “supply chain fractionalization”, producing certain products in low wage countries. This leads to increased greenhouse gas emissions, as goods are transported all over the world; without a system of taxing carbon, nobody pays for these emissions. “In the U.S. Walmart’s reported emissions grew by roughly 7% between 2005-2009. In Asia, its greenhouse gas emissions have doubled. The company expects 13 million metric tons of cumulative growth in emissions by 2015”. For all the lip service Walmart pays to environmental sustainability, this amounts to little more than a PR move.

Supply chain fractionalization—or outsourcing—has cost the U.S. an estimated 196,000 jobs from 2001-2006 due to Chinese Imports. This number has probably continued to grow, and represents jobs lost to production in other countries (outsourcing), and smaller domestic firms who were priced out of the market by Walmart’s business practices.

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How is Walmart a microcosm of the current U.S. economy? This issue is highlighted in a recent New York Times article. According to the article, “Walmart, the nation’s largest retailer and grocer, has cut so many employees that it no longer has enough workers to stock its shelves properly, according to some employees and industry analysts.”

“Labor groups and some employees say the low staffing levels are hurting the in-store experience.”

Like America in general, Walmart appears to be producing under capacity because of it’s reluctance to hire workers.

In an attempt to save money, Walmart has undermined consumer confidence in its produce—one of the bulwarks of Walmart’s profitability (“Grocery made up 55 percent of Walmart’s United States sales in 2012”). Does the concept of low consumer confidence sound familiar? It should, it is one of the things depressing aggregate demand and is related to stagnant wages, unemployment, and general pessimism of peoples belief in the economy.

“Before the recession, at the start of 2007, Walmart had an average of 338 employees per store at its United States stores and Sam’s Club locations. Now, it has 281 per store, having cut the number of United States employees while adding hundreds of stores.”

Walmart has undermined its consumer confidence, which threatens to hurt its bottom line in the long run (it has not in the short run, which I will address shortly). However, when questioned about the possibility of hiring more workers, “Ms. Scott [a manager at a Los Angeles Walmart] says she has pushed for additional staff or for more hours for existing staff, ‘and the answer that I receive is they want to focus on productivity with the workers that we do have.’”

Does this sound eerily familiar to an overall justification for stubbornly high unemployment in the U.S.? It should. Corporations (including Walmart) are sitting on record profits, yet have not increased hiring to post recession levels. Compounding the issue is that employee productivity and wages have diverged greatly. Employers, Walmart being the largest, are systematically relying on higher worker productivity to make up for a smaller labor force, with no inclination that the higher productivity they seek will result in higher wages.

Walmart, like many other large corporations, is answerable to its stockholders and high level executives. Executive pay is incredibly high, profit’s continue to rise, and stock prices are now well above their pre-recession levels. With all this positive reinforcement, why would Walmart change its practices?

Ultimately, market forces determine the success of a business. No-one is forcing people to shop at Walmart, they go there for low prices and good selection. However, there are systematic issues with how Walmart keeps its costs down—most notably paying low wages and increasingly relying on practices which damage the environment.

Some of these issues, such as minimum wage and environmental regulation, need to be addressed by government policy. People need to be aware of the facts, so they can vote for policies that hold large corporations responsible for the negative externalities they cause. More immediately, people can vote with their wallets, by shopping at Wal-Mart’s competitors (which, based on the breadth of their operations, can include almost all retailers).

If Walmart can post hundred-billion dollar profit margins, and pay its CEO over 1000x the median employee salary, it can afford a more sustainable and egalitarian business model. Walmart’s primary competitive advantage is taking advantage of economies of scale—there is nothing wrong with this. However, cutting corners in other ways unfairly shifts the burden of Walmart’s costs onto taxpayers and the environment. If Walmart’s profits begin to fall, they will rethink their corporate strategy. Until then, we can expect business as usual.

For the sake of it’s own profitability and the U.S. economy, Walmart should hire more workers at more livable wages.