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Union Economics

Wal-Mart has been much in the news recently for its shoddy treatment of employees. As expected, “advocates” for “labor” have been agitating for higher wages and, as usual, they presume that low wages are primarily the result of greed rather than of market conditions — and they presume that we can wave our magic wands to make wages higher with no other consequences either to the company or to the economy.

To his credit, Robert Reich penned an OpEd for The New York Times defending Wal-Mart — and, of course, decrying our own sinful addiction to discounts that makes Wal-Mart thrive. Rejecting Reich’s defense of the evil corporation but following up on his theme of our own debased behavior was a letter by William Seay, a self-described union representative, in which he condemned both Wal-Mart and their customers as greedy, stating that if we would only deign to pay a measly extra 12% for our Gummy Bears and Barbeque Grills then Wal-Mart employees could all make $50,000 per year.

This letter was submitted as a rebuttal, but was not printed.

7 March 2005

Union representative William Seay (letters, 7 March 2005) hypothetically trades off a $50,000/year wage for Wal-Mart stockers/checkers/baggers/greeters with “a 12 percent discount on Gummy bears and barbecue grills” for Wal-Mart shoppers — implying, of course, that any rational and compassionate society would take the hit on their Gummy bears if it meant a decent standard of living for those poorest of employees.

But Mr. Seay’s analysis is corrupted by the same “all other things being equal” assumption that pervades so much of the economic reasoning in our political debates — the assumption that in coercing a significant change in wages nothing else would change as a result.

In the first place, as Robert Reich (Op-Ed, Feb. 28) pointed out at least implicitly, that 12% discount on “Gummi Bears” is entirely equivalent to a 13% increase in the purchasing power — in the ‘real wages’ — of the millions of people who shop at Wal-Mart. Even viewed statically, the tradeoff is not between a decent wage for Wal-Mart employees and merest convenience for everyone else. Lower prices raise living standards just as surely as higher wages do, and the loss of that 12% discount would lower the living standards of those who benefit from them.

But, at root, the tradeoff is meaningless because economics is not static — because all things would not be equal. People shop at Wal-Mart because the low prices allow them to buy more stuff for the same money; if the prices were higher they would buy less stuff. The loss of that 12% price discount would mean not only the loss of customers for Wal-Mart but fewer purchases in the economy overall. Fewer Wal-Mart customers means fewer Wal-Mart employees to receive those generous $50,000/year wage packages; fewer purchases overall means the effects trickle down to the product suppliers and their employees as well.

Higher wages for a few; unemployment for the rest; lower purchasing power for everyone. That is Mr. Seay’s prescription.

© Copyright 2005, Augustus P. Lowell

2 Comments

  1. Uncle Sam Uncle Sam

    People point to Walmart and cry “anti-union”.
    Unions enable disfavored people to live satisfactorly without addressing their disfavor. This way their family’s problems are never resolved. Without the union they would have to accept the heirarchy, their own inferiority.
    Unions serve to empower.
    Walmart is anti-union because they are good. They try to help people address and resolve their problems by creating an enviornment where there are fewer hurdles.

    Media ridicule and lawsuits are creations to reinforce people’s belief that Walmart is evil in a subsegment of the industry dominated by the middle and lower classes.
    Low-cost disfavored Chinese labor is utilized by corporate america to maximize margins. They all do it. Only WalMart gets fingered because they are the ones who help, and those who seek to create confusion in the marketplace want to eliminate the vast middle class who have a real chance and instead stick with lower classes who may not work otherwise. So they dirty him up while allowing the others to appear clean.

    The coining of the term “Uncle Sam” was a clue alluding to this::Sam Walton’s WalMart is one of few saviors of the peasant class.

  2. Augustus Lowell Augustus Lowell

    I’m not sure I can bring myself to be that enthusiastic about Wal-Mart (or that dyspeptic either about unions or about the “disfavored”), but I do think unionists — and particularly their leaders — tend to be pretty fuzzy in their knowledge and thinking about economics.

    -apl

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