In Why Wal-Mart Pays Less, Russ Roberts notes that it is supply and demand for particular sets of worker experience, patience, kindness, creativity, skills, knowledge, and abilities that determines wages, not benevolence.
I'd like to add two points:
1) Wal-Mart pay is NOT less for workers within the particular pool and geographic locations it pulls from. In many markets around the country, Wal-Mart pay is NOT less than Target, Best Buy, Kohls, or nonunionized grocers -- all the other places at which Wal-Mart workers might alternatively work. Anecdotal information sprinkled throughout this blog and on other sites, from workers who have chosen Wal-Mart over these and many others, demonstrates this.
2) Wal-Mart pulls from a different pool of workers than Costco does. What's so hard about admitting this openly? The focus on Costco, like Dr. DeLong's recent retail "model" post linking to this Financial Times article, even when admitting them, does not zero in on the differences in worker pools, and the problem this presents to other companies who might try to dip into the same pool:
�It�s important to pay people a fair living wage,� says Mr Galanti, �and if you do, and it�s better than everybody else, you�re going to get better people � and they�re going to stick around longer, and we see that.�Mr. Galanti is NOT willing to pay just anybody a "fair living wage"; he'll pay that to people who produce that much, but will not pay it to slackers.
And what is true and workable for an individual firm is absolutely false for an entire economy. Repeat after me: if everyone followed this model, nobody could make a profit. Surely, it is theoretically possible for every retail company to follow this model, but then not every worker will produce as much as he is paid. Who is to cover these losses?
Henry Ford could offer a $5 day AND make a profit when everybody else thought he was crazy. But he and his management team sorted through, weeded out, and rejected thousands of workers of inferior quality, picking out the cream of the crop. If everybody else in the same labor market tried to match that, they would be fighting over the same best workers, not the ones who were rejected. Ford thought and Costco thinks that only a certain type of person deserves high wages. Wal-Mart acts on the same economic principle, but employs many people Costco would reject... and I take from this that there is no moral superiority to the Costco "high-wage model"....
Posted by Kevin on July, 14 2005 at 10:04 AM
