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Wal-Mart’s war on wages

US big-box retailer takes surprising stance on staff pay


BY Ellen Russell
Illustration by Joshua Leipciger

Concerned about Canada buying into Wal-Martization—the low wage, anti-union approach to doing business? You may be interested in a curious development from the United States: The latest critic of Wal-Martization appears to be Wal-Mart.

A year ago, the big-box retailer synonymous with low-wage business strategies asked the US Congress to increase the minimum wage. “While it is unusual for us to take a public position on a public policy issue of this kind,” said Wal-Mart CEO Lee Scott, “we simply believe it is time for Congress to take a responsible look at the minimum wage and other legislation that may help working families.”

My smiley face has not quite perked up over this news. After all, Wal-Mart pays low wages. A 2004 UC Berkeley study found that over half of Wal-Mart workers earned under $9 per hour, while other large retailers pay $14 on average. As a result, the families of Wal-Mart employees are more likely than other retail workers to need food stamps and other public assistance programs. Usually Wal-Mart must be forced kicking and screaming to pay something like a living wage—as Chicago city council has just done.

Wal-Mart contributes to a low-wage economy in other ways too. Its business practices force suppliers to cut costs, so in turn these firms cut wages. Other retailers (who may not have such influence over their suppliers) are forced to cut the wages they pay to compete with Wal-Mart. Another Berkeley study estimates that in 2000, the total earnings of retail workers in the United States dropped by $4.7 billion due to Wal-Mart’s presence.

And now Wal-Mart, the icon of the low-wage economy, wants to raise minimum wages? Has Wal-Mart got some kind of multiple personality disorder?

Believe it or not, this makes a kind of sense in the wacko realities of the low-wage economic model. Wal-Mart loves low wages, but it starts to be a problem if wages go too low. From Wal-Mart’s perspective, more highly paid workers can afford to shop at fancier places than Wal-Mart. So Wal-Mart is content when a higher-paid workforce gets its wages cut. For Wal-Mart, union bashing is A-OK because unions might actually fight for wages that are high enough to allow workers to shop at places other than Wal-Mart.

But if wages get too low, then too many people have too little purchasing power. Would-be Wal-Mart customers will be frequenting food banks and Dumpsters instead of its stores. At US $5.15 (less than $6 Canadian) per hour, the US minimum wage hasn’t risen since 1997. After adjusting for inflation, the purchasing power of the minimum wage is at its lowest level since 1955.

If minimum wages don’t start rising, Wal-Mart will suffer. Its lowest-income customers will no longer be able to afford to shop at its stores.

“We can see first-hand at Wal-Mart how many of our customers are struggling to get by. Our customers simply don’t have the money to buy basic necessities between paycheques,” says Scott.

Wal-Mart’s newfound concern for the plight of the lowest-paid workers is a clever way of dealing with the threat posed by a low-wage economy. Since Wal-Mart actually pays above the minimum wage, a boost in the minimum wage won’t hike Wal-Mart’s payrolls. (But it may make dollar stores pay more, which could help eliminate some of Wal-Mart’s low-end competitors.) So this is the best of both worlds for Wal-Mart: higher wages for its customers, no wage increase for its own employees.

The economic dilemmas posed by low-wage work are bigger than just Wal-Mart—they are as old as capitalism itself. In order to compete, every firm has an incentive to squeeze wages. But if all firms succeed in cutting wages, the potential exists that workers won’t have the ability to buy what is produced.

What happens in a global economy? When companies in the wealthier, higher-wage countries compete by moving to low wage countries, we have the makings of a vicious circle. The low wages paid abroad ensure that those workers can’t buy what is produced. These products must be exported back to the countries where people have higher disposable incomes. But as jobs are cut and wages are depressed in these wealthy countries, will there be enough purchasing power to buy that stuff being produced abroad?

Canada should think again about the lessons learned from Wal-Mart’s seemingly incongruous concern about the minimum wage in the United States. An economic model that runs by squeezing workers ultimately undermines the basis of its own success.

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Ellen Russell is the senior economist at the Canadian Centre for Policy Alternatives.


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