May 13, 2005

Always Low Thoughts, Always

Regardless of your view of Paul Krugman's ideology, you must recognize that he is perhaps the most divisive and unhelpful economic commentator in mainstream media. In fact, his latest editorial leads me to wonder if Krugman actually knows that he is using data dishonestly.

The average full-time Wal-Mart employee is paid only about $17,000 a year. The company's health care plan covers fewer than half of its workers.
The first statement cannot be correct; I'd love to see Krugman's source. In 2001, the annual earnings of all full-time hourly employees were $18,609 for men and $17,459 for women (a weighted average of $17,802 for all). So Krugman is $800 short -- and four years behind. If you add in the salaried full-time employees, the annual wages figure is substantially higher. If you move forward to the present, you'd note that Wal-Mart's nominal hourly wages have increased, probably above $18K.

The second statement is true, of course, for full-time associates, but not for all of Wal-Mart's full-time workers. (86%*56%)=48.2% of Wal-Mart's hourly associates were covered by Wal-Mart's plan. If you add in the salaried workers, this number is probably higher than 50% (though not by much). I have no idea where Krugman got the idea that "workers" equals "hourly associates"; he probably didn't think about it.

True, not everyone is badly paid. In 1968, the head of General Motors received about $4 million in today's dollars - and that was considered extravagant. But last year Scott Lee Jr., Wal-Mart's chief executive, was paid $17.5 million. That is, every two weeks Mr. Lee was paid about as much as his average employee will earn in a lifetime.

Not that many of them will actually spend a lifetime at Wal-Mart: more than 40 percent of the company's workers leave every year.

I'm not trying either to romanticize the General Motors of yore or to portray Wal-Mart as the root of all evil. GM was , and Wal-Mart is, a product of its time. And there's no easy way to reverse the changes.

WM and GM are products of their times, but more importantly, WM and GM are products of the cost structures of their industries (which technology has changed over time). They are also products of very different labor markets -- and the inability of unions to increase the costs of big-box retail while dominating the auto industry. When GM didn't have to worry about Japanese and Korean competition, it could afford its wage policies by extorting the domestic consumer; GM has made itself uncompetitive today by making promises it can't keep. Wal-Mart has intense domestic and international competition in retail with corporations, like Target, that are little different from it. It is not making foolish promises to its employees.

Indeed, a growing number of working Americans have turned to Medicaid. As the Kaiser Family Foundation points out, that's why children have for the most part have retained health coverage, despite a sharp decline in employer-based health insurance since 2000.
Surely, Paul Krugman knows that Kaiser itself has data that shows there have been ups and downs in employer-based health insurance since 1996, and currently the share of firms offering health coverage is higher than it was in the 1990s. Way to choose your base-year!

The attack on the safety net is motivated by ideology, not popular demand. The public isn't taken with the vision of an "ownership society"; it seems to want more, not less, social insurance. According to a poll cited in a recent Business Week article titled "Safety Net Nation," 67 percent of Americans think we should guarantee health care to all citizens; just 27 percent disagree.
What the public wants, and what the public is willing to pay for are two separate things, and the latter is very dependent on the incentive structures put into place by policy.. For an economist to ignore both willingness to pay and incentives is a betrayal of his calling.

The question is whether the public's desire for a stronger safety net will finally be seconded by corporations that haven't yet adopted the Wal-Mart model of minimal benefits and always low wages.
Exactly what is Krugman's justification for believing that the compensation policies of the largest company in the retail industry will determine the compensation policies of other companies in other industries? Please show me the evidence of Wal-Mart's effect on compensation policies outside of its direct effect on unionized grocers. Are the wages and benefits paid by Wal-Mart jobs lower than 1) a few, 2) some, 3) most, or 4) almost all jobs eliminated by the competition? If you answered either 1,2,3, or 4 then you did so by guessing, since as far as I've seen, there's little or no data about the wages of mom and pops compared to the wages of Wal-mart.

Posted by Kevin on May, 13 2005 at 02:46 PM