Wednesday, November 30, 2005

Low Skills Thus Low Wages

In the December 5 issue of National Review Magazine, Byron York takes on the leftist allegation that Wal-Mart is an evil corporation which ruins small towns and the lives of their residents. Quoth York:
The High Cost of Low Price, and the anti-Wal-Mart activism it represents, is so one-sided and so unfair that it is unlikely to sway anyone beyond the self-styled progressive activists who already hate the company.
The documentary he speaks of is the product of Hollywood-liberal activist Robert Greenwald. The movie's site declares "THE CRITICS ARE GLOWING" with favorable quips from Rob Reiner, Entertainment Weekly, the LA Times, and the Boston Globe. If I were a leftist filmmaker receiving praise from those sources, I'd be shouting it out from the highest mountaintops as well.

The film's description proclaims, "WAL-MART: THE HIGH COST OF LOW PRICE is a feature length documentary that uncovers a retail giant's assault on families and American values." Well for a concise rebuttal of the claims presented in the film, read York's piece on NRO. However, I will present a basic economic reason why Wal-Mart is so successful and ultimately why it is just what this country and its poorest citizens need.

Wal-Mart is the quintessential "big-box" store, but with a twist: it offers products at prices lower than its competitors. Let's examine why this is so, shall we. The price of a retail good is based on the input costs accompanying it, i.e. labor costs, resource costs, and production costs, etc. Resource costs and production costs vary minimally between companies like Wal-Mart and Target which sell nearly the same products. However, labor costs of which the workers' wages are the primary component, vary greatly.

Wal-Mart says that research shows their average wage rate to be around $9.67 while anti-Wal-Mart groups say it is close to $8.32. Either way it is around 5-10% lower than the national average wage rate for the industry. To simplify everything, with every other cost equal among all stores of the Wal-Mart ilk, the lower wage rate equates to a lower retail price for its goods.

Why is this important, you might ask. Well lower prices are always good because not everyone can afford premium goods, especially minimum wage earners supporting a family. The poorest citizens in America tend to be more inclined to shop at a Wal-Mart or Sam's Club instead of Target or whatever regional chains middle- to upper-class families may shop at. Also, the poorest citizens tend to be more inclined to work at a Wal-Mart or Sam's Club. They usually have less than a high-school education and very little experience in the workforce, therefore their skill level is inadequate for positions in many industries. However, it is places like Wal-Mart and McDonalds that accomodate these folks by giving them a base salary and low expectations which allow for a greater success rate and afford the individual an invaluable training opportunity.

I'm certainly not advocating every business practice Wal-Mart engages in. No corporation has clean hands when it comes to how it conducts its business, but many of the Wal-Mart breed (multi-billion dollar profit margins) provide the economy with an enormous net benefit. So many people argued a few years ago that Microsoft was an evil monopolist out to shut down its competition. Well Apple decided to improvise and come out with the iPod and the company began to see record profits come in quarter upon quarter.

Nevertheless, back to my point, Wal-Mart may pay its workers an inordinately low wage relative to its competition. However, the one BIG difference is that the people Wal-Mart employs would otherwise be unemployed were it not for their generosity in hiring practices. Take the case of Sha-ron Reese, as told by John Stossel:
Before Sha-ron Reese was hired at Wal-Mart she was on welfare. She'd lost custody of her kids and was homeless, living in her car. California store manager W.C. Morrison took a risk and hired her. "She had no references," he told us. "She had no work experience."

In her own words, she was "raw." But Morrison took a chance on her. That changed her life.

Today, Reese has two people working for her. She's got her own apartment. She's regained custody of two of her kids.

And she's a Wal-Mart customer. "Everything, just about, that's in my house," she said, "Wal-Mart sells."

As you can see, not every employee at Wal-Mart thinks of it as an "evil corporation" with profit as its only motive. What you'll never hear from documentaries like High Cost of Low Price is the other side of the story: the good side. It's the story of people who have no experience or recommendations. They come in with nothing, but they leave with something far more valuable than a big paycheck: dignity and confidence.

Maybe they'll work at Wal-Mart for two years, or maybe they'll go Sha-ron's route and work their way up the ladder to a better job and a better life. Either way, there is now a world of opportunity available that would have gone heretofore unrecognized if Wal-Mart was never around to help.

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