Walmart Enjoying 6.2 billion in subsidies

[Mursilis]

Thought I'd bump VG's post as I'd like to see a reasoned retort to the merits of its content, of which there hasn't been so far. (No offense, nehalem256).

VG's post is interesting, but it's no rebuttal against the idea that the purpose of a business is to make money - rather, the quoted text is merely an argument for thinking longer-term. It states that by paying more, Costco both lowers expenses (due to less employee turnover) and increases productivity (due to higher employee satisifaction) in the long term.

 

[fskimospy]

No, there is no added money in the economy if as a business owner I have to take $100 I would have spent myself and divide it amongst my employees to spend.

That assumes that all individuals are likely to spend money at equal rates, which is not accurate, in particular when in economic times such as this. Lower income workers are especially likely to spend their wages, which leads to an increased consumption effect, which leads to GDP growth.

There are other, longer term effects to consider, but the idea that a change in minimum wage just swaps out owner spending for employee spending is not supported by the evidence.

 

[Veliko]

No, there is no added money in the economy if as a business owner I have to take $100 I would have spent myself and divide it amongst my employees to spend.

This isn't about the actions inflicted upon a single business owner, it's about what happens to the economy as a whole as the lower earners start spending their extra disposable income.

 

[Chiropteran]

No, there is no added money in the economy if as a business owner I have to take $100 I would have spent myself and divide it amongst my employees to spend.

There is no shortage of money, it's just distributed poorly.

Taking $100 of your money and distributing it among your poorly paid employees makes the distribution of money slightly better.

 

[Matt1970]

This isn't about the actions inflicted upon a single business owner, it's about what happens to the economy as a whole as the lower earners start spending their extra disposable income.

Simply put the source of the funds for the wage hike came from funds that would have been spent buy someone else. You are just redistributing funds the way you think they should be spent, not redistributing funds so they will be spent.

 

[Matt1970]

There is no shortage of money, it's just distributed poorly.

Taking $100 of your money and distributing it among your poorly paid employees makes the distribution of money slightly better.

That's a better argument than saying it will boost spending in the economy.

 

[Veliko]

Simply put the source of the funds for the wage hike came from funds that would have been spent buy someone else. You are just redistributing funds the way you think they should be spent, not redistributing funds so they will be spent.

Sorry, what?

You are redistributing funds to those who are most likely to spend them.

 

[fskimospy]

That's a better argument than saying it will boost spending in the economy.

You should probably call a whole bunch of economists and tell them they have it all wrong then.

Low income workers have a higher marginal likelihood to spend what they make. Giving them more money increases overall spending in the economy. This is not a controversial position.

 

[Matt1970]

You should probably call a whole bunch of economists and tell them they have it all wrong then.

Low income workers have a higher marginal likelihood to spend what they make. Giving them more money increases overall spending in the economy. This is not a controversial position.

Right, so they can spend it at Walmart and it goes right to China.

 

[fskimospy]

Right, so they can spend it at Walmart and it goes right to China.

Now you're changing the argument. Does this mean you now agree that minimum wage hikes increase spending in the economy?

 

[PokerGuy]

Thought I'd bump VG's post as I'd like to see a reasoned retort to the merits of its content, of which there hasn't been so far. (No offense, nehalem256).

The post (actually, the article quoted) is complete rubbish. It's essentially trying to argue that Costco's model (pay more, get more engaged employees) is superior. If one were to believe that logic, then you'd have to think that walmart management is completely stupid and just doesn't know how to make money, and you'd have to assume that there is one model that works best across industries. Neither one of those assumptions is correct. What works for costco doesn't mean it works for McDonalds or for Apple. We keep talking about walmart and costco as if somehow they are examples of different practices in the same industry -- they are not. They are completely different businesses serving different customer groups in different ways.

Further, while it can indeed be true that paying more up front can result in bottom line gains because of lower turnover etc, I'm pretty sure every large company (like walmart) does that kind of analysis all the time. Last I checked, walmart made $17B in net profit last year, not too shabby.

In fact, if you actually start looking at the results of costco vs walmart in terms of things that actually matter to the investor (not profit, but things like ROI, ROE etc), you'll see that walmart beats costco hands down in ROE in both absolute and percentage terms. It also beats costco in stock performance. That's not a coincidence. Nothing wrong with costco, they are terrific at what they do, but there is no reason to say that somehow their model is superior to walmart.

 

[PokerGuy]

The reality that we're trying to skirt around is that we've reached a point where the value brought to the organization by some level of employees is simply less than what it costs that employee to live and support a family. The way that's getting sorted out right now is that the employer is paying what the labor is worth, and the remainder of the tab is getting picked up by the taxpayer (by way of assistance etc). Arbitrarily increasing the minimum to some new number (which nobody knows how to create by the way) will not solve that problem, it will just shift the burden to the employer to pay an employee more than what the employer receives in value. That makes no sense.

 

[Veliko]

The reality that we're trying to skirt around is that we've reached a point where the value brought to the organization by some level of employees is simply less than what it costs that employee to live and support a family. The way that's getting sorted out right now is that the employer is paying what the labor is worth, and the remainder of the tab is getting picked up by the taxpayer (by way of assistance etc). Arbitrarily increasing the minimum to some new number (which nobody knows how to create by the way) will not solve that problem, it will just shift the burden to the employer to pay an employee more than what the employer receives in value. That makes no sense.

It makes perfect sense and has been explained three or four times on this page alone.

 

[PokerGuy]

I realize that bumping living wages increases costs, but it will not bring you right back to where you start. As you said there are tons of industries that don't pay minimum wage and none of those will be effected to the extent of the supplemented industries.

That's not correct either. If the minimum is $8, and I'm making $12 because I have a skill that allows me to get paid more, what do you think will happen to my $12 rate when the minimum goes to $12? You think I'll still be making $12? Of course not, my rate just went to $16, and that process will go all the way to the top. In fact, many at the top of the food chain would probably get even bigger increases.

Bumping the minimum wage will simply put the burden back on the shareholders and consumers of the products made by industries semi-exploiting our poverty support system.

As I posted earlier, you'd just be forcing the employer to pay more for the labor than what it's actually worth, and you'd just push the employer to more rapidly identify ways to reduce that expense (outsourcing, automation, process change etc). The underlying issue that some labor simply isn't worth enough to pay for a standard of living that we're saying should be a "minimum" is a structural problem that likely will not go away.

 

[PokerGuy]

It makes perfect sense and has been explained three or four times on this page alone.

Just because someone has an opinion that it should be done doesn't mean that it makes sense. It doesn't.

 

[Zaap]

That's not correct either. If the minimum is $8, and I'm making $12 because I have a skill that allows me to get paid more, what do you think will happen to my $12 rate when the minimum goes to $12? You think I'll still be making $12? Of course not, my rate just went to $16, and that process will go all the way to the top.

It'd actually be nice if it did work like this (except for the fact that accompanied by no increase in spending power, it'd just be a meaningless shuffle of numbers) but it assumes that employers just have money to pull out of their ass to pay for it across the spectrum. Of course the reality is, many don't. (I know the sub-third world mindset many in this country are now adopting tells them that employing people = ENDLESS wells of money, but of course we in the real world know that's not the case.)

So more likely, the person previously making $12 will just get kicked back down to minimum. If the position raises to $16, then people at that level can likely expect fewer hours, or layoffs until values come back in line. (IE: $16 will just be the same pay $12 used to be). Most people will NOT just get an automatic increase by the same amount above minimum they were at before- that's the best kind of wishful thinking.

 

[Matt1970]

That's not correct either. If the minimum is $8, and I'm making $12 because I have a skill that allows me to get paid more, what do you think will happen to my $12 rate when the minimum goes to $12? You think I'll still be making $12? Of course not, my rate just went to $16, and that process will go all the way to the top. In fact, many at the top of the food chain would probably get even bigger increases.

This is true otherwise we would all me making the same wage because minimum wage would have eventually caught up to everyone.

 

[Veliko]

That's not correct either. If the minimum is $8, and I'm making $12 because I have a skill that allows me to get paid more, what do you think will happen to my $12 rate when the minimum goes to $12? You think I'll still be making $12? Of course not, my rate just went to $16, and that process will go all the way to the top. In fact, many at the top of the food chain would probably get even bigger increases.

There will be an inflationary effect, yes, but it won't be on a 1:1 ratio whereby everyone is back to how they were within a few weeks or so.

 

[fskimospy]

There will be an inflationary effect, yes, but it won't be on a 1:1 ratio whereby everyone is back to how they were within a few weeks or so.

Agree. This is not the case:

http://ftp.iza.org/dp1072.pdf

 

[halik]

The bottom line is every company paying below a living wage for a 40 hour work week is enjoying corporate welfare. Personally I think a living wage should be implemented and then coupled with a massive scale back on benefits. End the corporate welfare, let people be able to put food on the table by putting in work (even if it's as benign as cash register) and I think society would benefit greatly. McDonald's (the company infamous for directing people towards food stamps & welfare programs) $1 menu may go to $2.00 but my taxes are already going to help them.

Without a doubt the single greatest danger to our society is the public owned company chase for quarterly profit with great ignorance for long-term health. This race to the bottom for minimum wage is slicing through our middle class.

No, we collectively choose to subsidize people whose skill set commands very little wage. Walmart or any other unskilled employed didn't mandate that we subsidize these individuals, we did. The value of their labor is simply very low and socially it's more optimal to have them working for walmart and get gov't benefits rather than not working at all.

It's not as if walmart you suddenly value a greeter at $15/hr if we took away the walfare benfits. Mandate the $15/hr and there will be no greeters and no burger flippers

Also there's no such thing as "living wage". It's an indefinite marketing term that's merely a tool to push agenda of whoever is using it. I lived on $25K year in grad school, I currently couldn't live on less than $50K given my liabilities. What's my living wage?

 

[PokerGuy]

There will be an inflationary effect, yes, but it won't be on a 1:1 ratio whereby everyone is back to how they were within a few weeks or so.

Nope, I agree it would not be 1:1, and it would not be immediate, but it would most likely occur specifically on those goods and services most impacting those who get the initial boost (ie, low wage earners), as they would be most likely to turn around and spend the money. Either way though, it doesn't actually solve the basic underlying problem: the labor provided is not valuable enough to warrant the employer paying enough to allow the employee to meet some arbitrary standard of living. As long as that gap exists, someone is going to be paying more for that labor than what it's worth. Right now, it's the taxpayer. Some want it to be the employer, assuming that the employer will just accept that and not take steps to further reduce the (now inflated) cost.

That problem will not change or go away by sharply increasing minimum wage.

An interesting discussion to be sure, but completely meaningless without some sort of definition of what exactly constitutes a "living wage", and for just how many people such a "living wage" would need to be sufficient support. If we make min wage $20 per hour, can that person now support a family of 10 without government support? Of course not. So first you'd have to define what exactly your "living wage" means. Then you can get into a discussion of what tools are available.

 

[QuantumPion]

No, we collectively choose to subsidize people whose skill set commands very little wage. Walmart or any other unskilled employed didn't mandate that we subsidize these individuals, we did. The value of their labor is simply very low and socially it's more optimal to have them working for walmart and get gov't benefits rather than not working at all.

Hey for once I agree. We should totally have a government benefit that rewards lower income people for working by subsidizing their income. We could call it the earned income tax credit. Then there wouldn't be a need to punish individual companies on a political basis because the money would come from the general tax base.

 

[CLite]

That's not correct either. If the minimum is $8, and I'm making $12 because I have a skill that allows me to get paid more, what do you think will happen to my $12 rate when the minimum goes to $12? You think I'll still be making $12? Of course not, my rate just went to $16, and that process will go all the way to the top. In fact, many at the top of the food chain would probably get even bigger increases.

Come on dude... you do not honestly believe a minimum wage increase automatically transmits to the rest of the pay scales all the way to the top of the food chain? That is truly asinine logic. As an engineer who is earning six digits my pay is in no way shape or form tied to a McDonald's employee getting 5 bucks an hour or 10 bucks an hour or even 15. The market price point for the engineering discipline (or any other professional or craft practice) is not getting dictated by minimum wage bumps.

Again a 50% bump on 5% of the work force who represents maybe 0.0001% of industry expenditures when you factor in materials/etc. is not going to have close to a 50% bump across the board. The impact is going to be completely negligible expect for those people (shareholders/consumers) directly tied to the minimum wage industry.

As I posted earlier, you'd just be forcing the employer to pay more for the labor than what it's actually worth, and you'd just push the employer to more rapidly identify ways to reduce that expense (outsourcing, automation, process change etc). The underlying issue that some labor simply isn't worth enough to pay for a standard of living that we're saying should be a "minimum" is a structural problem that likely will not go away.

I understand minimum wage is a complete artificial constraint of the market, and I understand there are market losses associated with that artificial intervention. I personally believe it is worth it since I think people should be able to put food on the table and I rather that be provided by their employer versus government programs.

Your position on the underlying issue is reasonable, I simply believe you are dramatically overstating the consequences of a minimum wage hike and ignoring the societal costs of letting industries operate significant portions of their business around rotating in minimum wagers.

 

[QuantumPion]

Come on dude... you do not honestly believe a minimum wage increase automatically transmits to the rest of the pay scales all the way to the top of the food chain? That is truly asinine logic. As an engineer who is earning six digits my pay is in no way shape or form tied to a McDonald's employee getting 5 bucks an hour or 10 bucks an hour or even 15. The market price point for the engineering discipline (or any other professional or craft practice) is not getting dictated by minimum wage bumps.

Did you start your career making 6 digits right out of college? Or did you get raises over time as you gained experience?

 

[Veliko]

Nope, I agree it would not be 1:1, and it would not be immediate, but it would most likely occur specifically on those goods and services most impacting those who get the initial boost (ie, low wage earners), as they would be most likely to turn around and spend the money. Either way though, it doesn't actually solve the basic underlying problem: the labor provided is not valuable enough to warrant the employer paying enough to allow the employee to meet some arbitrary standard of living. As long as that gap exists, someone is going to be paying more for that labor than what it's worth. Right now, it's the taxpayer. Some want it to be the employer, assuming that the employer will just accept that and not take steps to further reduce the (now inflated) cost.

That problem will not change or go away by sharply increasing minimum wage.

An interesting discussion to be sure, but completely meaningless without some sort of definition of what exactly constitutes a "living wage", and for just how many people such a "living wage" would need to be sufficient support. If we make min wage $20 per hour, can that person now support a family of 10 without government support? Of course not. So first you'd have to define what exactly your "living wage" means. Then you can get into a discussion of what tools are available.

It's only meaningless to those who want it to be meaningless which is why you're throwing up an example of someone with 10 children and trying to claim it as a legitimate barrier to implementing things.

No-one is saying that increasing the minimum wage will solve all problems for eternity, allowing us to close down the treasury and disband the IMF, just that it's one thing that will make a difference and nudge things in the right direction.