Walmart and the Welfare State

My friend Ned Resnikoff has a good summary of one of the more fascinating aspects of Walmart’s ongoing and escalating struggle with its workers, the recently leaked documents showing a systematic effort on the part of management to depress employee wages as much as possible. The Huffington Post  was first to report on the document, which was originally passed around among Sam’s Club bigwigs and is used by Walmart, too. A Walmart employee subsequently spoke to the media as well, describing what it’s like to sustain a family on Walmart wages:

Despite Walmart’s insistence that employees are paid fairly, low compensation ranks high among striking workers’ grievances. In a conference call organized last week by the campaign Making Change at Walmart, several employees of the company complained of poverty-level wages.

“I struggle to support my family on $14,000 a year,” said Sara Gilbert, a customer service manager at the company for three years. “My children are in state housing and we get subsidized housing and food stamps.”

Economist Julianne Malveaux said, “[Walmart] employees earn around $8 an hour. This is not a living wage, this is not a working wage, and especially not a living wage when they’re not working 30 hours a week, which would allow them to get health insurance.”

She said that many employees who would otherwise be working full-time were scheduled for 24 or 26 hours a week, so that Walmart would not obliged to provide them with full-time benefits.

Not to resurrect ugly memories, but you’ll recall that we just had a national election in which the mantra, for months if not years, was jobs, jobs, jobs. Implicit is the idea that a job is enough: enough to raise your family, maintain your dignity, and be a real, productive, valuable member of society. Enough to live the American Dream. In America, a job is supposed to be enough.

From roughly the end of World War II until the mid-to-late 1970s, that was more or less true. But we all know what started happening during the 70s, even if we can’t agree on why it happened or what to do about it. Wages stopped rising but the costs of necessities like health care, education, and housing did not. And so we have countless millions like Sara Gilbert, whose story reminds me of my favorite Bruce Springsteen lyric, from “The River,”

Is a dream a lie if it don’t come true / Or is it something worse?

More specifically, take a second and read about the donations the Walton family has made recently. Get ready to be not-surprised!

Alice Walton, daughter of Wal-Mart founder Sam Walton and (according to Forbes) the 10th-richest American, has given $200,000 to Restore Our Future, the super PAC backing Mitt Romney. So has her brother, Jim Walton (the youngest son of Sam Walton and the ninth-richest American). Jim Walton also gave $100,000 to Our Destiny super PAC – the organization backing former Republican presidential candidate Jon Huntsmann. Christy Walton, the sixth-richest American, and widow of John T. Walton (another son of Sam Walton), gave another $50,000 to Our Destiny.

On June 30, 2011, Alice and Jim Walton, along with Jim’s wife, Lynne Walton, all contributed $30,800 to the National Republican Senatorial Committee, and another $30,400 apiece to the National Republican Congressional Committee.

In total, so far this cycle these three Waltons (and spouses), have contributed more than $813,000 to political campaigns or outside spending groups in this election cycle – every dollar to Republicans.

I’m not sure if the Walton family political worldview is best described as chutzpah or ignorance or fecklessness. Because without the big government welfare state that their chosen candidates promised to strip to the marrow of its bones, the Waltons would could not get away with paying their employees such a pittance. As the example of Sara Gilbert shows, Walmart’s willful near-immiseration of its workers is, today, only feasible due to big government programs like public housing and food stamps.

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1,077 thoughts on “Walmart and the Welfare State

  1. Here is my thing with much of the handwringing over Walmart: If they raised wages, offered health care, etc. what would happen to their prices? What would happen to the people who depend on Walmart’s low prices to get by? It just doesn’t seem quite as simple as it is often made out to be.

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    • Price increases to offset wage increases in a company like Wal-Mart are a red herring – all the company has to do is accept the corresponding drop in profit percentages and the pricing can remain intact. It’s like Papa John’s saying they have to either raise prices or fire workers to comply with the Affordable Care Act – they won’t say how much they might have to lower prfit margins to remain neutral, but I bet they could do it for under 10%.

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    • It’s important to note that labor costs are only a part of their cost structure. If labor costs rise 10%, they would only need to raise prices by some amount <10% to compensate. Likely only a percent or two, maybe 5% at most.

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  2. We don’t know how much the prices would rise.

    If the prices increased such that a struggling family needed 1000 more dollars per year to buy the same goods then the wage increases would have a more negative effect than if the wage increases only caused price increases such that the struggling family only paid 50 dollars more per year.

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  3. Gotta love the irony, but as I always ask commentators on both sides when issues like this come up – what do we DO about it? Calling out these inequities is the first step, and I’d love to see some enforcement against Wal Mart and others for their clearly illegal anti-union actions. But the publicity surrounding lack of living wages and health insurance has been around for, what, two decades regarding this company? The bad press certainly hasn’t hurt them any – they are as unwilling to engage in fair labor practices now as they were when I worked there part time a decade ago.

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    • The only solution to things like this is a strong union movement in stores, which can’t come about without the government actually enforcing the laws around union-busting that Walmart routinely violates. That’s the key here.

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        • That would also help. But even putting teeth in the “don’t fire people for organizing” bits, which are already on the books, would be useful. Certainty of enforcement would be huge even barring a change in the law.

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          • TH isn’t so bad. It has a place.
            A union can shut you out of work as well as open the door.
            There are many different models, and you don’t get to choose the model by membership.

            There are many, many times that I feel like a land-locked peasant trapped in some antiquated feudal system.
            In fact, that’s a completely adequate summary of the situation.

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  4. And Wal-Mart doesn’t just depress the wages of it’s own employees, it’s practice of pressuring suppliers to meet it’s low price points forces those same suppliers to cut costs to the bone. And don’t even get me started on the corrupting and illegal practices they employed to secure retail locations in Mexico. Apparently Wal-Mart is the biggest single employer in Latin America as well. I wonder how those employees manage to get by?

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    • Just to put your comment in some perspective.

      Down in Brazil, minimum wage is R$ 600 per month. Thats roughly U$300 per month – our usual ‘business months’ are considered to have 172 hrs of work.

      A big mac meal costs R$17 – roughly U$8.5

      A Chevrolet Camaro (first car that came to mind that exists here and in the US) – begins at R$ 203,000. Thats U$ 101,500. Yes, 100k.

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  5. Ron Unz, writing for The American Conservative addressed raising the minimum wage, and tackled this question of ‘what would happen to prices?’

    . . .given the simultaneous rise in labor costs among all competitors and the localized market for these services, the logical business response would be to raise prices by a few percent to help cover increased costs while also trimming current profit margins. Perhaps consumers would pay 3 percent more for Wal-Mart goods or an extra dime for a McDonald’s hamburger, but most of the jobs would still exist and the price changes would be small compared to typical fluctuations due to commodity and energy prices, international exchange rates, or Chinese production costs.

    The resulting one-time inflationary spike would slightly raise living expenses for everyone in our society, but the immediate 20% or 30% boost in the take-home pay of many millions of America’s lowest income workers would make it easy for them to absorb these small costs, while the impact upon the middle or upper classes would be totally negligible. An increase in the hourly minimum wage from the current federal level of $7.25 to (say) $12.00 might also have secondary, smaller ripple effects, boosting wages currently above that level as well.

    The piece is worth a read; a good conservative argument for a liberal policy.

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    • Should note that a big part of the argument here is that low minimum wage means that tax payers subsidize giant retailers like WalMart. Increasing minimum wage would actually move many people, the working poor, off welfare and decrease the EITC, so there would be a significant federal savings.

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      • Pirate,

        To mash up the line from Kung Fu… When you can point out the logical mistakes in the link you provided, it is time to discuss it. Until then, we are both wasting our time.

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          • i can’t open yours. Can you re link?

            The point about Pirate’s that was interesting was its focus on retail jobs. It basically suggests a minimum wage on retail jobs, which is interesting. The reason of course is that retail jobs, like government jobs, don’t face competition from outside the US. Manufacturing jobs were killed when we messed with market forces. Foreigners stepped in and did it for less.

            Since foreigners can’t step in to do retail jobs, they are more immune to competition, thus the government can use mandatory wage hikes as a kind of redistribution paid by consumers of retail products.

            I am not a fan of this approach due to the way it interferes clumsily with the market, and thus will reduce productivity. On the other hand, the best retort to my concern is probably “compared to what?”.

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    • The problem with a sudden rise in minimum wage is that there might be a lot of stuff that is tied to minimum wage.

      Here in Brazil we have a lot that is tied up with minimum wage – Everything related to federal retirement is, as well as most federal employees wages are based on the value of the minimum wage. So a rise on the value of minimum wage means that the whole government spending will go up a lot.

      Yes, it is a stupid system.

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  6. Rather than beating up on Wal-Mart, we should be looking at why these people can’t find better jobs. Wal-Mart jobs are pretty useful as part-time jobs for teens and others who want a second job. If enough people currently working there move on to greener pastures, the need to fill those positions will push the wages up.

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    • That’s an interesting question. They’re not qualified for those jobs. The larger question remains, in the game of Wage Limbo — (basso profundo Caribbean voice) “How lowww … can you goooo?”

      Want to sell something to Walmart? There’s a whole process for it. They’ve got the whole life cycle of your product mapped out. They’ll help you find an appropriate manufacturer for it (in China, natch), they’ll look at your numbers, tell you exactly where your price point will be every year you sell your product, predict exactly how you’re going to reduce your margins. Nobody who sells to Walmart gets a break.

      Many manufacturers refuse to deal with Walmart on those terms, in which case, Walmart will start competing with them via a house brand. They’ll steal your trademarked bottle design and put their own mouthwash in it and colour it to your exact shade of blue and sell it right next to your product.

      If there are greener pastures there are also browner pastures. A lot fewer green ones than brown ones. Walmart could pay its people more and pass the costs along to the consumer. But once you’re in the commodity space, you’re driven by ever higher volume and ever lower margins and that’s all Walmart does. You want an alternative to beating up on Walmart? Walmart beats up everyone, even their own suppliers. Care to comment on that? Coz this is what I know. Every bottle of Listerine going through Walmart flows through my web services.

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      • This is really important. I’ve seen several businesses, small manufacturers, done in by WalMart (and here in ME, by LLBean) in just this way. Smaller producers cannot meet the needs, often end up growing their businesses too fast while shedding other, existing customers, and so fail, only to have their product co-opted by the monster they were trying to sell their product to.

        The end result is both fewer places to shop and fewer products to choose from. But hey, that stuff is cheap.

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      • ” in which case, Walmart will start competing with them via a house brand. They’ll steal your trademarked bottle design and put their own mouthwash in it and colour it to your exact shade of blue and sell it right next to your product. ”

        House brands have been a thing since forever. It’s not something that started with Wal-Mart.

        Besides, you seem like the kind of guy who’d claim that it’s the mark of an anticompetitive loser to claim that they should have some kind of exclusive authority over putting a particular blend of chemicals in a bottle.

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      • I often wonder if perhaps the most optimal social program would be a moving allowance. Most of the problems seem to be people stuck in the wrong place: places where there are no jobs, places where the schools are bad, etc. Let’s give everyone a free move to the place of their choice. And you get another free move every two years in case that didn’t work out for you. The beauty of this is it also helps the other side of the equation: places with plenty of jobs can now fill them. Places that want growth can more easily compete for people looking to move.

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        • Mises would like this. And it would solve a lot of problems This OneTime ™, aka the current recession/depression.
          Just one problem: a lot of people sunk tons of wealth into their current properties. They aren’t getting that back. Do you support jinglemail? (send back in the keys, cancel all debt?)

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          • Well, I was figuring most of the people benefiting from this would be renters, not homeowners. But it could be tweaked to allow for cases where the owner is underwater in their mortgage. Just have to be careful not to create an incentive for people to screw over the mortgage companies. And yes, I’m biting my tongue trying to avoid starting a whole subthread on the cause of the housing bubble.

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            • Just re-read your comment and realize I was a little off the mark. Yeah, that is a problem, if everyone leaves and can’t get anyone to buy their house, business, etc. Guess I’ll have to think this one over a little more. Already working on Retirement Solutions, Inc. Now I’ve got Mobility Solutions, Inc. on my plate, too.

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              • More of a market problem is folks buying a $100,000 house thinking that it will be worth MORE 20 years from now… It won’t. Most of the money people sink into new houses is fancy gewgaws, with hardly anything spent on the bones. (and this is ignoring problems like subsidence…) Very few people buy “forever” homes, and this is because people are being priced out of their retirement (most of a person’s wealth aggregates in his house, not retirement savings).

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                • All the appreciation in home values is in the land. The actual house value depreciates (at an average rate of ~1/3%/yr).

                  And the Case-Schiller home price index shows that the value of residential housing has just matched inflation for the last century.

                  It’s a relatively safe mattress to stuff your money in, since you need a place to live anyway, but it’s not really a paying investment unless you get lucky and ride a good bubble.

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                  • Suburbs aren’t going to be popular forever. And then everyone who decided to plunk down in a cheap exurb is gonna be really poor, because they can’t sell out, and gas prices will pinch ’em good.

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                    • Once the shifting of thought that led to “outsourcing” morphs and shifts and realizes that “homesourcing” is not *THAT* different plus you don’t have to provide janitorial, I think we’ll see as much pro-suburb pressure as anti.

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                    • There was one hell of a backlash to, let us say kindly, “certain accents” in certain outsourced countries that did, indeed, result in hits to the bottom line.

                      For a while there, there were a spate of commercials that tried to walk the fine line between coming out and screaming “OUR CUSTOMER SERVICE CENTERS ARE BACK IN THE US!!!” while refusing to acknowledge that they might have ever been somewhere else.

                      I have high hopes that there will be at least one corporation that says “WE’RE MAKING MONEY HAND OVER FIST!” and that results in investors asking “why aren’t you doing this?” in the same way that outsourcing once inspired.

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                    • I called Verizon customer service a while ago, and got a guy with one of those accents. He was great, so it was just idle curiosity when I asked him, while we were waiting for my phone to reboot, where he was. He replied “Albuquerque, sir” (which, if you picture it being said in that accent, is quite funny.) And it was true. When I mentioned Breaking Bad, it turned out that he was also a fan and mentioned several places he knew well that had been used for location shots.

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                    • Mike,
                      yeah, I know someone who works for a big corp around here. She’s from South America originally, and still has a lot of the accent. When people sometimes ask her “where are you calling from” she responds “US Steel Tower”

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          • Actually, I do support jingle-mail. It’s in the contract. I have the right, for whatever reason, the hand the property back to the lien holder. There are costs associated with it, of course (credit score hit, responsibility for the remainder of the note after the sale of the property, etc.), but it is my right.

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        • There’d have to be (significantly large) areas with a labor shortage; currently we could tell if/where those would be by finding large labor markets with rapidly increasing wages.

          I don’t think that there are too many.

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    • The problem is that there are a lot of jobs which are necessary for society but seem absolutely determined to pay a low wage. This is an issue I think about a lot.

      There was another story this week in Bloomberg that was indicative of this trend. It was about an African-American woman who worked as a care taker for the elderly. She has been making 12 dollars an hour since 2005. She also lost her dream house in the Fiscal Crisis. The story contrasted her fate with the guy who ran the Mortgage Department at Bear Sterns. He made something like 8 Million Dollars last year and seemed to suffer no punishment despite being the guy who ran the department that caused Bear Sterns to belly up.

      Why does the home care taker only make 12 dollars an hour and has not seen a raise since well before the fiscal crisis began? The United States has a rapidly aging population and we are going to need more people who take care of the elderly. No one can argue with a straight face that her job is unnecessary. Perhaps it is not quite skilled labor but there should still be a wage premium for necessary jobs.

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      • And there are a lot of jobs that are utterly unnecessary for society, but also seem to want to pay a low wage. Canvassers and Waitresses in particular.
        The market for legal prostitution, on the other hand, seems remarkably expensive.

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      • New Dealer,

        You should think about it a lot. It is like a Zen Koan. When you finally get it, all will be clear. You may also want to think about why water and food, which are necessary for life, usually cost less than diamonds, which are totally superfluous.

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        • And why someone who has the rare talent to destroy a firm as large as Bear Stearns makes so much more than someone with the mundane talent of taking care of people.

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    • Or her contrast her to me.

      I graduated law school in 2011. According to the statistics, only 55 percent of people who graduated law school in my year have jobs that require bar passage. Luckily I am one of these people.

      My job is on contract but it pays very well. Surely my firm could probably charge less because of the alleged overglut of recent law school graduates. Some firms have been trying to take advantage of this. Yet my firm luckily does not.

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  7. Its also worth pointing out- again- that Wal-Mart only exists in its present form, due to the legal and regulatory structure that the taxpayers have constructed and pay to maintain and enforce.

    I say this in anticipation of the properety rights/ contract rights argument, that the labor agreement between workers and Wal-Mart is not the taxpayer’s business. The taxpayers have every right to ask if Wal-Mart’s very existance is in our benefit and if so, under what terms we allow them to operate.

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      • I phrased it deliberately to make the point that Wal-Mart in its present form, has no right to exist.
        The corporate form of business has no natural right to exist- it was a legal fiction, a thing that we the taxpayers created for the sole purpose of being aconvenience to us, to facilitate our needs for commerce.

        We could, with a stroke of the pen, abolish it tomorrow and Wal-Mart revert back to a sole proprietorship.

        Further, as we’ve discussed on many other threads, all large corporations in America exist atop a massive pile of direct and indirect subsidies, market distortions, and outright welfare, given to them by the taxpayers.

        We have every right to ask if all of this privilege we create is in our best interests.

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  8. This post is like a fly trap for those drawn to folk theory economics.

    1) Walmart pays market wages for labor. That is what they should pay if we want to optimize productive efficiency and prosperity.

    2). If you think market wages are too low, then I recommend rectifying it with non market fixes. Let’s see to it that these working poor get their fair share of the almost trillion dollars in means tested redistribution we spend each year in the US.

    3) Beware oversimplified models on the effect of coercively higher wage rates. If Walmart doubled wages, the market would respond not by getting the same people higher wages, but by different people becoming Walmart employees. You would just get substantially higher qualified and skilled people filling the slots. The major effect would be to subsidize skilled workers and encourage them to underutilize their skills.

    4). Beware oversimplified models of profits. The long term effects of raising rates cannot be paid out of long term lower profit margins. The market will respond to this and the net result will be less stores, higher prices, fewer employees and less competition. Profits are dynamic signals in markets.

    5). Considering the tone of this post and those on the left and their anti market, anti walmsrt vitriol, I cannot begin to imagine why the Walton’s donated money to the GOP. This is like a case study on why we want to encourage political contributions. To combat illogical pandering like this.

    6). Is anyone surprised that Walmart wants to reduce wages? You do know that this is what employers are expected to do to manage costs, right? Managers are paid to optimize costs vs benefits. If anyone thinks they have done so pooly, the market response is to prove it by doing so better yourself. Which you can do by working for or investing in Target.

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    • Yeah. I knew a manager once (worked Ames). He was always giving out bonuses. Got him better employees, better workers, and he was always turning a better profit than everyone else in the division.

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    • 1) Walmart pays market wages for labor. That is what they should pay if we want to optimize productive efficiency and prosperity.

      This is a truism, and tells us nothing.

      It’s also why we need a strong labor movement. “We’re just paying you the market rate” is a pretty sorry excuse for paying people shit, but it seems to work for people who feel like the market determines the value of everything. The nice thing about the labor movement is that it says, “You know, we’re worth more than that to you, and we’re going to put pressure on you to pay us what we’re worth to you, not what you can get away with in the ‘market.'” This isn’t folk economics, it’s just not the facile economics of the “market” pure and simple.

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        • Roger, I actually think you don’t understand them. At a given price-point, Wal-Mart generates a certain amount of profit. But how to divide that between workers and management? There are multiple viable equilibria on that one. Unfortunately, we’re in the one where the Waltons earn billions and wages for their employees are low. The way to move to a better equilibrium is to enhance the bargaining power of the employees relative to management–hence, unions.

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          • Dan and Chris,

            As I mentioned to Kimmi below, the wage levels paid to workers can be viewed as a theory of how to meet consumer needs. Target’s theory might be let’s pay slightly higher wages and get better workers and see how that works. The theories then play out in the market. Profits are the signals that consumers give on how well those needs were met. They are like applause. Saying Walmart is wrong in a reasonably well functioning market is like saying the audience is wrong in their enjoyment of a concert.

            There are ramifications of viewing this as a struggle between the owners and the employees, it is inherently an act of cooperation, not conflict, with supply and demand determining the optimal weights. Assuming that we could take x from annual profits and move it to employees, ignores the effects longer term of lower expected risk adjusted rates of returns. This will reduce capital investment, numbers of stores, competition in the industry, raise prices and lower the number of required workers.

            Yes, short term we can enact a wealth transfer by taking from net worth of the Waltons and shifting it coercively to our favored groups. But this is called exploitation. I believe I have no right demanding they fund my conscience. Any fair system would not pick out the one party that is doing the most for those workers (paying them voluntarily agreed to wages) and penalize this by forcing them to pay above market wages. It isn’t just wrong and partial, it is counterproductive. It penalizes job creation.

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            • Heh. About the time you get around to explaining how Walmart employees can be paid so little that they qualify for food stamps, then we can get back to the much-hated Wealth Transfer line of rhetoric. I’d prefer not to have my tax dollars subsidise goddamn Walmart’s wage structure.

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              • The alternative is to demand that the one person actually providing the job pay for your conscience. There is a cost to manipulating markets, and the cost plays out in less effective markets, and since market’s create the wealth that we use to fund our conscience, this is very dangerous.

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                • Now yesterday was awfully productive, me talking about how Libertarians were trying to reduce friction in the economy. Don’t be posing absurd alternatives.

                  When we want more of something, we subsidise it. When we want less of it, we tax it. That’s the truism, nu? Subsidies are a form of market manipulation. If the taxpayers put Food Stamps in a Walmart employee’s pocket, it’s that much less Walmart has to pay them. Simple economic fact. In point of fact, by keeping its workers below the poverty line, they pay fewer taxes and their employees remain on assistance.

                  So whose conscience is being mollified by subsidising Walmart? Not mine.

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                • Markets create wealth? Humph. Aeroseal is simply a distribution of soemthing that wasn’t market created. Ditto velcro and a gadzillion other things. Useful, cool stuff.

                  RISCy business, eh?

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            • Roger, ideally it would be “inherently an act of cooperation, not conflict,” but of course it’s not when the employer holds all of the leverage. That’s why unions can act as a counterbalancing force, and, dare I say, as one that can quite easily be considered a part of the market. To say that wages are at “market level” simply because that’s what wages are is to miss that point (and many others). Sure, Walmart’s profits would drop, or their prices would go up (the latter is probably more likely). If the prices went up, and then their profits dropped, we could have a conversation, but ya know, unions have been known to take wage cuts when profits fall.

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                • Naturally. Refusing to hire men because they’re more resistant to blackmail is all a happy daffy supply and demand thing.
                  “Hey guys, we’re going to lower your wages!”
                  –Hell, no!
                  “Hey girls, we’re going to lower your wages!”
                  –my kids still have to eat, don’t they…?

                  Exploiting psychology is all part of supply and demand

                  How is chocolate like sex?
                  –a better Zen koan for you.
                  Not that I expect you to get it.

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                • Roger, I didn’t claim that wages are set by leverage. However, there are two groups who have interest in wage levels, and often one of those groups has all of the leverage, or power, or whatever you want to call it, such that the only “market factors” that play a role in wage-setting are those related to the interests of that group.

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                  • Chris,
                    This would be true in a market of one employer. In a market of lots of employers, wages are set not by the lowest wage that the employer can imagine but by the lowest wage that is simultaneously too high for another employer to entice the worker away. That is where supply meets demand.

                    And yes, this stuff is very complicated and above my pay grade. Every time I post my comments I realize that James K or Nob or James H or Brandon will correct me, and sometimes they do, and when I dig into it I usually find they were right and I was wrong. Damn! That said, the only way I can learn is to try to say it and then read their push back.

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                    • Roger, except, as others have noted on this thread, the employer end works more efficiently when there are more employers too. It’s not as simple as the lowest wage they can pay without losing their employees to other employers, because the other employers aren’t the only variable in the equation. Labor is another variable, and one that can, by raising that lowest wage, raise the wages throughout the market.

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                    • Chris,

                      Could you clarify please? I am assuming lots of prospective workers and employers and that the competitive cooperative dynamic leads toward full employment.

                      Raising the lowest wage, by such things as a minimum wage or a coercive union, would lead to more unemployment and lower net productivity and wealth. The key to a more prosperous working class pretty much comes out of increased productivity. Productivity is the path to prosperity. Not workers fooling themselves about solidarity.

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                    • Roger,

                      Raising the lowest wage, by such things as a minimum wage or a coercive union, would lead to more unemployment and lower net productivity and wealth. The key to a more prosperous working class pretty much comes out of increased productivity. Productivity is the path to prosperity. Not workers fooling themselves about solidarity.

                      This is false, likely because the paragraph that precedes it is false. Again, look at the effects of unions in the first 60 years of the last century.

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                    • Chris,

                      US Incomes and standards of living are substantially higher now than then. And the real gains have been in less developed nations.

                      Chris, I know this sounds goofy and all , but the past decade was the best decade ever for humanity and average incomes. By a long shot, by a country mile. This isn’t as good as it can get, but it is the best it has ever been.

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                  • Hostess. Even the Teamsters told them not to strike. And now the union is complaining that Hostess was mismanaged. Well of course they were, which is exactly why it was a stupid time to strike. When you’re chained to a clumsy person at cliff’s edge, you don’t give them a push.

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                    • And its not like the management had demonstrated any particular skill in running the company profitably.
                      From what I’ve read, that management team couldn’t run a whorehouse on a Navy base.

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                    • Hostess (the company) was also a victim of leveraged equity investing Bain style. New investors, investing borrowed money, transferring that debt to company while paying themselves back, plundering pensions, etc.

                      That, btw, leaves taxpayers on the hook for the pensions.

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                    • Hostess hasn’t been without its problems over the years. To blame their current demise on Private Equity is to purposely misread the facts. For decades the American eating habits have been to replace sugary bleached foods with more whole wheat, sugar free offerings. Yes everyone (except me) might cheat now and then and have a Twinkie now and then, but that’s nothing to hang a business hat on.

                      IF the union wanted to keep their jobs (5000 of them) AND wanted to keep their brethren not in the same union (13,000) employed , they could have accepted some concessions. Of course by not doing so they sure showed Hostess didn’t they? The word stupid doesn’t even begin to describe some people.

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                    • Ward-
                      Your first paragraph describes how the management targeted the wrong product to the wrong market;
                      Yet this fundamental business error could have been- should have been- overcome by the workers taking a pay cut?

                      Is that really your argument?

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                    • Here’s what I can say. When Hostess Brands filed for their second BK, they simply stopped paying into the retirement fund, as per their previous 2009 agreement.

                      The unions really didn’t want to take them to court over this, but Hostess Brands was already before the court. So there’s the outstanding unpaids, among them are the obligations to the union pension fund…. the rest you already know.

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                    • Other companies are doing well in the bakery business, companies NOT saddled with addled employment contracts as Hostess was. Those contracts paid over $65/hr plus unsustainable pension benefits. The word unsustainable is one that needs to make it into the vernacular of the liberal lexicon. Companies CAN NOT survive on unsustainable business practices. Governments CAN NOT survive on unsustainable practices either, although being able to print money and field armies gives them a bit more “runway” as the VC’s would call it.

                      And Nob is wrong about the Teamsters, they are no longer part of the AFL-CIO and /had/ agreed to concessions. Let’s talk about those concessions shall we? The unintentionally funny part of this scene was the antiquated work rules the Teamsters operated under, wherein delivery trucks would not commingle different Hostess products.

                      Unions have driven companies out of business before, they will continue to do so in the future. There is no antidote for stupidity. 18,000 people are unemployed because one of the unions at Hostess was at least as stupid as the management. Certainly 20 years ago they could have started working on better products and marketing if they hadn’t been making unsustainable concessions to their unions. Unions have ZERO interest in the long term viability of the companies they work for, they are only selfish interest agents, always have been, always will be. The rest is just window dressing.

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                    • In what sense did the union members screw up? Management made an offer; the workers decided they’d be better off working somewhere else, so declined the offer. Sounds like a routine negotiation. Yay free markets.

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                    • Lib, just like with the auto industry, when times are good mgt makes deals with unions that are mathematically and fiscally unsound. Would mgt have made those decisions in the /absence/ of the unions applying pressure? I leave the answer as an exercise for the student.

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                    • Clearly the free market isn’t working, because management keeps getting out-negotiated by unions. We need laws to prevent workers from talking to each other or forming associations that can hurt their employers.

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                    • , if you’re happy that a minority of employees can drive the company out of business (and cause unemployment for the majority) then so be it. I’m guessing you’re not in a union yourself, just brutha’s wit em.

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                    • Ward, shouldn’t that be a minority’s right, if their absence is crucial enough to the company that the company cannot survive without them? If a small company of seven has one superstar programmer, should that one guy (a minority) be prevented from threatening to leave without a raise?

                      If you think that the employees ought to have to act as a single unit, either they all strike or none do, then that’s a big union argument.

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                    • I’m agreeing with you, Ward. It’s one thing for a corporation’s management to use corporate assets to influence an election — that’s protected free speech. But for a corporation’s employees to conspire to try to increase their wages? That should be a RICO violation.

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                    • I think everyone’s missing my point about Hostess.

                      1. I agree that mismanagement is the reason for Hostess being in dire straits. I don’t really know whether it was sheer stupidity, inability to adapt to changing American dietary patterns, private equity, or what, but for purposes here that doesn’t matter–call it all management, and say it’s the reason Hostess already went through bankruptcy and was struggling in recovery.

                      2. I understand that Hostess’s employees had already made concessions. I also understand that Hostess had imposed unilateral changes (approved by a judge) in the contract that cut employee’s benefits even more.

                      3. When your employer is that close to the wall, what does a rational union do? The Teamsters said, take it, shut up, and come back to demand more when the company actually recovers (I may be paraphrasing a bit there). The Bakery, Confectionery, Tobacco Workers and Grain Millers’ International Union (best union name ever!) instead made demands that led the firm’s owners to decide that actually closing the business down was their best option. And instead of getting anything remotely like they asked for, the workers all lost their jobs.

                      Clawback suggests the workers rationally “decided they’d be better off working somewhere else, so declined the offer.” No. Any worker who decided they’d be better off working somewhere else would have quit and gone looking for a job. What they actually did was to ensure elimination of the job itself. That’s a substantively different thing.

                      I’m not letting management off the hook here, but as I said, if you’re at the edge of a cliff and you’re chained to a clumsy person, you don’t push them.

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                    • The workers evidently decided their prospects for finding other jobs, combined with their judgment of the expected value of holding out for a reasonable offer (i.e., the value of a successful strike times the probability of success) exceeded the value of accepting the crap management offer. Funny how economic actors are assumed to be generally rational except when they consist of some hated group.

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                    • Clawback, that doesn’t explain why instead of just leaving their jobs they actually destroyed them. If I decided my job was no longer worth the pay, and that I had better prospects elsewhere, I’d resign, not make sure the job disappeared.

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                    • If I decided my job was no longer worth the pay, and that I had better prospects elsewhere, I’d resign …

                      But that’s what they did. They just did it collectively, which they have every right to do.

                      … not make sure the job disappeared.

                      This is incoherent. The company is free to keep making Twinkies without the workers if it so chooses.

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                    • “This is incoherent. The company is free to keep making Twinkies without the workers if it so chooses.”

                      Is it? I am not an expert on labor, but many of the reports I read made it seem like the company had to figure it out with the labor or they wouldn’t be able to staff the plant. Are there any requirements that they work with union labor? Was no one willing to cross the picket line? These are genuine questions… I’ve never been a part of a labor or worked in a union shop.

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                    • It’s not i coherent at all. Management said “We’re going to go under unless we get these concessions”” and the Union said “Fish you, you’re lying. If things are so bad, why did you all give yourself raises?” It turned out the management wasn’t lying. This time. And they gave themselves raises because, you know, they could.

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                    • Kazzy, proceeding without the union workers would have been complicated but possible. The company chose not to attempt it, which suggests they determined doing so would not be economic. Which in turn suggests they decided they cannot produce and sell Twinkies economically enough to attract qualified workers, union or none.

                      You’ll note none of this fits in with some “the union destroyed the company” trope.

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                    • Mike, the decision to close was made by the company, not the workers. That it was preceded by a threat no more places the onus on the workers than my saying “your money or your life” before murdering you would make you responsible for your own murder.

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                    • Kazzy,

                      I agree. Management should have had the freedom to renegotiate contracts or find new employees. If they in actuality did have this freedom, then so be it, the market hypothesis lost out in the competition of trying to serve customers. If they did not have this freedom, then they had their hands tied behind their backs, and we limited the responsiveness of the market.

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                    • It seems to me that companies should be able to hire as they like (with certain limitations… no “Irish need not apply” rules) and employees should be able to organize as they like. I am sure there are real reasons why it is not quite that simple. However, it does appear to the untrained eye that it is needlessly complex.

                      Ultimately, if you can’t run a profitable business, you probably should go under. I mean, it’s not like we have the mayors of major cities putting forth legislation specifically targeted at certain industry…oh… wait…

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                • And they’ve been known to push their firms over the cliff by refusing to take them.

                  The factory’s closing because it’s not profitable enough and the owner won’t invest in upgrading it!

                  Creative destruction is capitalism at work.

                  The factory’s closing because the bank won’t renew the company’s line of credit!

                  The bank’s is in business to make a profit; it’s not a charity.

                  The factory’s closing because the union won’t accept the latest round of pay cuts!

                  Fishing unions, always destroying jobs!

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                  • It’s interesting to me that the actions taken by the collective known as a union is always nefarious but the actions taken by the collective known as the owners and representatives of a firm are never nefarious.

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                    • Note that the reason I am washy washy on this is that my experience is much of the disagreement between libertarians and the left is that those on the left are often evaluating the action on intentions or first order effects, and the libertarians are trying to anticipate all effects in a dynamic world of chains of cause and effect.

                      The arguments on sweatshops, the effect of higher wages on profits, and other concerns in this thread often come down to disagreements of this manner. I have not worked out the details pro and con of limiting workers ability to exchange data on their salaries as a part of a voluntary employment contract. It seems like a bad idea to me, but before I am sure I would want to see how the factors play out in a dynamic world.

                      Wouldn’t you?

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                    • much of the disagreement between libertarians and the left is that those on the left are often evaluating the action on intentions or first order effects, and the libertarians are trying to anticipate all effects in a dynamic world of chains of cause and effect.

                      I’d say the opposite. Libertarians start from “Absolute property rights are an unmixed good”, and are willing to go wherever that leads them (e.g. the public accommodations section of the 1964 CRA being evil statist coercion), while liberals try to gauge the effect of different policies before embracing them.

                      I’m guessing that you’d completely oppose a law against disclosing salaries, because that would obviously be coercive, but you’re unwilling to call something enforced by private economic sanctions coercive. I’d call that a libertarian blind spot.

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                    • *spits* Both stupid and dumb. The people most in need aren’t working sweatshops, Roger. And why help one person when you can save 100 from blindness with the same amount of funds? A kid who goes blind by the age of 5 is functionally nonproductive as a citizen, particularly in poor countries. Living by begging.

                      But, oh, no, let’s talk about sweatshops, as if you know anything about them.

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                    • Of course they aren’t working in sweatshops yet, they are still waiting for my much needed capital investment, I am ashamed to say. Does anyone have a good list of sweatshops I can invest more in?

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                    • Mike,

                      I agree with your take on anyone who believes in absolute property rights. Seriously.

                      I think it is possible that a law which prohibits taking action against employees disclosing salaries woul be a good idea. I really am not sure. I am not against all regulations, nor am I for property rights for the sake of property rights.

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            • It is truly amazing that you can discuss the poverty wages the Waltons pay their employees (a practice that gives them a share of Walmart profits sufficient to make the Waltons among the wealthiest Americans out there), and somehow conclude that transferring some of their net worth to those employees would be exploitation!

              Sorry. I just can’t see this bunch of manipulative plutocrats as the victims here. T

              As to capitalism, the union movement started in this country precisely because of things like this. If you think unions are counterproductive and socialist and whatever, then it would behoove you not to defend the sort of business practices that ultimately lead to workers uniting.

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              • Dragon,

                I do not support exploitation from any side. I dont support the Walton’s using force against employees or vice versa. Both lead to a worse world. The proven solution to this issue is to set wages based upon supply and demand, and supplement it with safety nets, public and private.

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        • Roger, I know you don’t, and that’s why I called your economics “facile.” It’s a convenient way of treating avoiding having to deal with real problems, and even suggesting that they aren’t the moral problems that they are.

          But, given that I know what happens when labor movements are strong, I don’t have to accept “facile” economics that treat wages as a simple product of a labor market.

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          • Chris,

            I think you not ought to call Roger’s economic facile, and claim your approach isn’t folk economics, until you’ve put some serious study into the field. I know you’re aware of the concept of folk psychology, and I’m sure you’re aware of how little understanding of your field people who’ve never bothered with a serious study of it have.

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                • James, what I find odd is that when someone else says what I’m saying (Mike S, for example, down thread), Roger has no problem accepting it. I can’t help but think that his take on my economic knowledge has nothing to do with my economic knowledge or his (which, I now suspect, is probably about as impoverished as mine).

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                  • Chris,

                    I am sorry. I just didn’t think I needed to restate my same arguments to Mike. I will though. Again, I am no expert on this stuff, and will appreciate any corrections.

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                    • You’re no expert on this stuff? You talk like you are, so often saying that others absolutely are wrong, that they don’t get concepts that they absolutely must get, that you are absolutely right about, that there’s no chance you are wrong apply just as you think they do in the situation at hand. I would say that kind of talk requires the confidence of an expert in the subject-matter of his expertise, except that, especially in a field like economics that relies so heavily on stylized assumptions about behavior, but generally as well, in my experience real experts tend not to display it quite like you do. So I guess your behavior comports with your self-description as “no expert.” Perhaps it comports more with “ideologue” or “polemicist.”

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                    • Speaking as someone who argues with Roger a great deal, I’d rather have someone directly oppose a point generally, then retreat specifically. Makes for a sounder debate, I think. The Devil is in the details as he usually is, but so are the angels who dance on the head of a pin.

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          • But, given that I know what happens when labor movements are strong, I don’t have to accept “facile” economics that treat wages as a simple product of a labor market.

            Sure, unions can cartelize the labor market, and that changes the price and market-clearing quantity of the labor market for their industry. Every introductory economics textbook has a section on monopolistic markets, and how they differ from competitive markets. Specifically, they tend to result in higher market-clearing prices and more producer surplus, but also deadweight loss and lower market-clearing quantities.

            No one’s saying that unions don’t change the dynamics of the labor market. We’re saying that those changes are not good.

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        • Me and my liberal friends were saying this just the other day, if only there were a business pro who could drop by and explain to us- slowly and clearly, mind you- How Business Works.
          Maybe even give us a primer in Econ 101 (“when demand rises and supply falls, prices A) Rise or, B) Fall . We can never get that straight!)

          And sure enough, here we go!

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            • It’s a great opportunity. All you have to do is take a gamble on your philosophy, pay double market wages and see what happens. Please, please go for it. After all, your employees will buy some of your stuff so you can get some of your money back, right? Now is the chance to test your theories!

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                • Yes. If your theory works it can prove itself, whether I believe it or not. Markets are constructive problem solving systems that solve for the problem of how do we cooperate best together to solve consumer related problems.

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                  • Hmm, if only there was a real world empirical example of higher wages being coerced on employers, and then we could examine to see the effects!
                    Too bad the idea of workers striking and forcing employers to raise wages is nothing but a novel theory. It would be great to see how it would work.

                    In the meantime, lets discuss economics again, in a fact-free, evidence-free way, where we trade abstract theories and postulate hypotheticals with game theory and ideology.

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                    • Heh. Those damned old unions, paying themselves huge raises, climbing into the lifeboats after decades of mismanaging the company and loading it up with debt. It took a court to reveal the full extent of the damages done by those dreadful unions the owners.

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                    • I agree with you.

                      You guys need to chill.

                      Obviously bad management is bad for business. There is no way I support golden parachutes for the people whose incompetence and negligence torpedo a company. The reward structure, particularly for executives, is horribly skewed, in a way that is both grossly inequitable and destructive of economic growth in the long term. A captain should go down with the ship, not shove the children out of the lifeboats.

                      If I could publicly cane those responsible for the 2008 financial crisis and the subprime loan fiasco, I would. Personally.

                      That being said, that is all beside the point, because all I was trying to address was that you are acting as if there is no possible downside to unionization. I simply pointed one out.

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      • It’s also why we need a strong labor movement. “We’re just paying you the market rate” is a pretty sorry excuse for paying people shit

        There’s nothing to excuse. An employer makes an offer, and potential employees are free to take it or not. If the employee doesn’t have any better offers, that’s not the employer’s fault.

        The bottom line is that paying above-market wages is charity, not something that employers owe to their employees. The idea that there’s some connection between employing someone and having an obligation to give him charity is sheer non sequitur. The logic doesn’t even rise to the level of “facile”—there’s nothing there at all.

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        • Here’s a brief primer of employment theory. To get money to cross the counter and into a cash register (the entire point of capitalism) someone has to ring up a sale, or these days, manage the cashier-bot at the self-checkout.

          An employer can only justify hiring someone if there’s some monetary benefit to the proposition. The employee must agree to work for somewhat less value than he brings into the firm. To illustrate this principle, when a gangster wants to extort money from a firm, one option is to featherbed: create a job for someone who does no meaningful or profitable work. Salesmen work on commission but they’re worth every penny if they can create value. But they still need a base salary, be it ever so low, to keep them in peanut butter between sales.

          But the employee is not privy to the accounting which goes into the justification for his hire. Nor would the salesman know the true cost of production of the goods he sells. Unless you’re waist deep in the accounting, it’s hard to know what the margin actually is. Nor would anyone know how much anyone else is being paid, unless others told him: in America, knowing everyone’s salary is very rare.

          There’s simple way to short circuit the Marxian employer-employee conflict. It’s often seen in Europe, where it’s actually the law in countries such as Germany. If an employee were on the board of directors, the employees would know the true state of affairs. This goes both ways: the employee-director could come back to the employees and say “Folks, times are not good, to keep this firm afloat we must cut salary costs for a while, until we get into a better patch.” But when times are good again, the board remembers the employees and rewards them for sticking it out through tough times.

          Employees are not cashier-bots. Employers aren’t ATMs. When I hear people talk about Market Rate for employees, there’s no market without meaningful information to support it.

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          • Blaise this is where you’re screwed. There is NOTHING stopping a union from plunking some of the billions it collects in dues and BUYING shares in the company. But enough shares and you are /guaranteed/ at least a seat on the BOD. Problem solved

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            • I’m not screwed. I just finished the paperwork for my consulting firm, turning the revenue over to the people I trained. Heaven forbid an employer would take an interest in the well-being of his employees, or consider them as valuable assets.

              You’re the one who’s screwed, thinking employees ought to have to buy their way into the good graces of the board.

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              • You talk like you have a fishing clue how I run my businesses. I’ve NEVER had employees who didn’t have options to own shares in the company. I’ve also had employees continue buying shares above and beyond the ones they were granted outside of the option program (ie on the open market). I’ve made millionaires out of employees who bought into the business. However I’ve never had union employees either, the very concept of having an adversarial relationship with owners is anathema to me. My employees /are/ owners, so adversarial with me is adversarial with themselves.

                We could make fun of other unions, such as the pilot’s union at United Airlines. They had a crippling ALPA strike WHILE the pilot’s union was the /majority/ shareholder in the company. At the company meeting a pilot stood up and said, “My shares were worth $2.5 million and now they’re worth nothing” and management explained to the pilot how his OWN actions caused that to happen, just so he could get a few thousand a year more in wages. Braindead is as braindead does.

                If unions were such a great idea, unions should own companies and run them the union way. We’re all sitting by with bated breath to see how that all works out. Funny thing is, unions have been around for more than a century and the only outcome of the “union” running things was in the Soviet “Union”. We all know how /that/ particular experiment ended.

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                • Well, my crew of monkeys are pretty happy with the arrangement. Germany has this problem beaten. It’s obvious: put an employee or two on the board, the problem solves itself. You can even outlaw closed unions. Wouldn’t that be great?

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    • So Roger I’m guessing you should be fully supportive of the employees of Walmart voluntarily organizing to pressure their employer to improve working conditions yes? You’re down with deregulating the old labor laws that currently restrict what activities and strategies labor movements are allowed to use (presuming of course that force and fraud remain illegal of course) yes?

      Also regarding your #2 I believe Elias already observed that Walmart specifically employs the redistribution you’re talking about as part of its employment model.

      But I do agree with you on one thing. Absolutely everyone who possibly can should patronize Target instead of Walmart.

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      • North,

        Of course I support non coercive labor organizing in the private sphere. I don’t think it can lead to above market wages, though it may be able to slightly adjust what the market clearing wage plays out to. In other words, voluntary unions are a great idea, but probably not very effective in achieving much higher wages. The key word above was voluntary.

        By the way, I would really value any critiques you or Nob or either of the Patricks provide on this issue. You guys often disagree with the libertarians, but you always know what you are talking about. When you tell me I am wrong, I really listen, because there’s a very real chance you are correct.

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          • Hence the emphasis on the word voluntary. The effect of non voluntary, aka coercive unions is to get higher wages at the expense of the industry and the consumers the industry was intended to serve.

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            • That would presume the workers were volunteering to do their jobs. Please dispense with that Voluntary/Coercive line of rhetoric. It doesn’t work in the real world. There’s nothing voluntary about stocking shelves.

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                  • Chris,

                    In the end, they chose it over entropy. Life requires constant problem solving to survive and thrive. Markets are systems that discover how to cooperate together to meet these needs in a world of entropy and scarce resources. If you master plan the market, you kill off the problem solving capability and the result is poverty, short life spans, and about 6 billion less of us. Please do not do anything to markets until you learn how they work.

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                    • If you master plan the market, you kill off the problem solving capability and the result is poverty, short life spans, and about 6 billion less of us. Please do not do anything to markets until you learn how they work.

                      And again you’ve essentially created a straw man. No one is suggesting we master plan the economy, but instead that the reigns should be taken off another market force. One that you’ve even admitted is such a force.

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                    • P.S., I’m trying to stay respectful, but arguing from the position that anyone who disagrees with you doesn’t understand how the market works, is a pretty shitty way of going about things. For one, your view is not the only one even among experts. So if you want to argue that your interlocutors disagree with you simply because they don’t understand economics, you’ve got some legwork to do before that becomes a convincing point in your favor. As it is, it just looks like you’re being dismissive.

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                    • Chris,
                      no, see, roger just said that since I can make a profit (and have) via paying above market wages, he’s wrong and we’re right. Nevermind that I wasn’t arguing it was a universal solution…

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                    • Heh. You’re already on board for subsidising Walmart’s crap wages. You’ll have to decide which you want, a world where we have equilibrium or one without it. As wages stagnate and executive compensation increases, that’s proof positive we don’t have market equilibrium and soon enough it’s into a death spiral, leading to your Hobbesian Dystopia.

                      Oh, by the way, poverty increases populations, not decreases them. Capitalism always concentrates wealth, no sensible person argues with that. The key to keeping capitalism working is to make sure the money keeps moving from hand to hand, and not into cash glaciers.

                      The Fiscal Cliff is provoking an interesting response on Wall Street. Corporations are currently holding roughly 6-8 trillion dollars in cash reserves: they can’t seem to find anywhere useful to invest that money. But faced with the prospect of higher taxes, they’re now disgorging that money as dividends.

                      That means there’s going to be a torrent of cash entering the economy. Until quite recently, he usual route to deal with that cash was to simply buy back stock. And it’s all going to be taxed, which will give the USA quite a boost. You don’t have to Master Plan the economy. You have to steer it toward some goal.

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                    • It is not market distortion for unions to negotiate a higher price at which to sell the labor it is offering, no more than it is for a corporation to negotiate a lower price for the products it resells. That is the market. .. but only ideologues think markets, left on their own are inherently efficient,

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                • Really.

                  And consumers, too. Though I never set food in them if I can help it, more and more I cannot help it because the alternative are no longer available.

                  And manufacturers, too, who chose to go out of business because of WalMart’s requirements for doing business with WalMart and the lack of alternative markets (see above).

                  WalMart. The Norman Bombardini of marketplace solutions.

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            • Roger, the right to voluntary agreements is not an absolute–for instance, an eight-year-old can’t voluntarily agree to a 40-hour work week, and I can’t make a voluntary agreement to sell myself into slavery even if I had a willing buyer. So the small bit of coercion involved in what you call “non-voluntary unions” frankly doesn’t concern me all that much, when weighed against the large gains in human well-being that would come about from higher levels of unionization.

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        • The current “market wages” result, among other things, from the huge disproportion in bargaining power between employees and workers. It seems to me that if you rectify that, the result is still a market wage.

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    • 1) Walmart pays market wages for labor. That is what they should pay if we want to optimize productive efficiency and prosperity.

      “Market wages” is a fallacy. Wages are a result of price discovery. Supply/demand, you know, that sort of thing

      2). If you think market wages are too low, then I recommend rectifying it with non market fixes. Let’s see to it that these working poor get their fair share of the almost trillion dollars in means tested redistribution we spend each year in the US.

      Most Walmart employees don’t earn enough to pay taxes.

      3) Beware oversimplified models on the effect of coercively higher wage rates. If Walmart doubled wages, the market would respond not by getting the same people higher wages, but by different people becoming Walmart employees. You would just get substantially higher qualified and skilled people filling the slots. The major effect would be to subsidize skilled workers and encourage them to underutilize their skills.

      They won’t double wages. Walmart is in the commodity business. They don’t sell quality, they sell volume. The only way they could improve wages would be to get off the death spiral of low quality. You have it exactly backward: Costco pays its people more because they compete on quality and volume. Of course, you have to buy a lifetime supply as a minimum sales unit. Just sayin’.

      4). Beware oversimplified models of profits. The long term effects of raising rates cannot be paid out of long term lower profit margins. The market will respond to this and the net result will be less stores, higher prices, fewer employees and less competition. Profits are dynamic signals in markets.

      Profits aren’t the only signal in markets: beware of oversimplification yourself. Walmart’s dumping cash into dividends to avoid higher tax rates. It’s hardly alone in so doing.

      5). Considering the tone of this post and those on the left and their anti market, anti walmsrt vitriol, I cannot begin to imagine why the Walton’s donated money to the GOP. This is like a case study on why we want to encourage political contributions. To combat illogical pandering like this.

      Walmart wanted low tax rates. Such contributions were an investment to that end.

      6). Is anyone surprised that Walmart wants to reduce wages? You do know that this is what employers are expected to do to manage costs, right? Managers are paid to optimize costs vs benefits. If anyone thinks they have done so pooly, the market response is to prove it by doing so better yourself. Which you can do by working for or investing in Target.

      Which takes us full circle. Walmart can reduce wages because it can: so much for “Market Wages”.

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      • You pretty much offered the same definition I would use to define “market wages.” Furthermore, I agree with many of your points. Just to clarify, number two relates to the need to ensure that working poor get their fair portion of means tested transfer benefits. My guess is that some of them do already.

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          • I believe that if Walmarts wages do not meet my values, that it behooves me and those who agree to subsidize them. Asking Walmart to do so would be counterproductive to enhancing the prosperity of the poor. It would do more harm than good. In this case the moral high ground of paying for my values and the path which is most productive are totally aligned.

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            • See, Roger… that’s a fine idea. And we should pay for that social largesse by taxing the crap out of the subset of the population that owns as much wealth as the the bottom 40% combined. That would be the Wal-Mart heirs, BTW.

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              • The “wealth” the Walton heirs own is in the form of Walmart stock. Destroy Walmart and you’ve destroyed their wealth base. Tax them to death if you like but there is NO WAY you’ll receive the book value of that stock. Even selling their shares on the open market will drive down the value of the remaining shares, so $10Billion worth of shares will clear the stock market at something like $1B or less. Paper value is just that, paper. Much of the “wealth” of that top 1% looks exactly the same, good on paper, illusionary in reality.

                Bill Gates put a large percentage of his Microsoft stock into the Bill and Melinda Gates foundation. They’ve been steadily selling the stock since they had it gifted to them. That has been a headwind against the Microsoft share price, which has been stagnant almost to the day since the foundation was formed.

                The US government owns a goodly chunk of GM. They couldn’t possibly recover their investment if they started selling. Only over much time could it /possibly/ get back to the price at which the gov’t paid for the shares and this was out of BANKRUPTCY! The debt was all cleared off the books already, it was a clean slate (except for the concessions to the unions, but I won’t go there in this tiny column).

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                • To pile on here, at the risk of being labeled a FYIGM toady of the oligarchy (only a matter of time anyway), I’d like to make two observations.

                  (1) If two members of the household were earning $14k each (and such arrangements are common, I’m told) then the combined income of $28k would put that household ahead of 1/3 of the households in the US. I don’t have stats on health insurance coverage, so there is a comparability issue, admittedly.

                  (2) If we were to expropriate the evil Walton clan, and could convert most of it to cash (contra wardsmith) to fund a pay increase for present and future Wal-Mart employees, it would work out to about $1 per hour. If instead, that perpetuity were put towards health insurance, it wouldn’t be enough – it would have to be more than 3 times that (see this).

                  Just trying to scope out the magnitude of this injustice.

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    • Nearly everything that Wal-Mart sells comes through a port or harbor on the coastline of maerica.
      Nearly all of these ports were constructed by taxpayers.

      Suppose We decided to charge a fee for port use, commensurate with the societal cost that We estimate Wal-Mart is costing Us?

      Suppose We charged a trucking fee for the use of Our roads?

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    • There is more to life and decision making than Market Justifcations. There is also ethics, morality, fairness and justice. Abstract notions but important ones that makes us human. Ghandi was onto something when he came up with the creed of no economy/commerce without morality. This is much better than the cheerful praise of The Dismal Science.

      So even if there is a perfectly market justified reason for Wal-Marts compensation practices, they are still morally and ethically wrong and therefore should stop. It is wrong to give people less than a living wage and causes more of a burden on the state. If Libertarians wanted less state than they would support higher living wages for unskilled workers. Of course you maybe you have a secret fantasy of meeting a Robspierre or Trotsky one day.

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    • “these working poor get their fair share of the almost trillion dollars in means tested redistribution we spend each year in the US.”

      Well, about half of that trillion (that the right often lies about, implying that we spend a trillion on poverty) is medicaid paid by the states and federal gov’t. It’s not like there’s a bunch of wasted welfare-cash on medicaid that we can just use to help walmart employees.

      A lot of that “means-tested” money is not “welfare to help the poor” but is money that is absolutely necessary to keep the middle class, middle class.

      BTW, Rober Rector -the guy Heritage guy who authored the trillion dollar claim- is a hack and a liar (of sorts.). “In a 1994 congressional hearing, Robert Rector of the Heritage Foundation unveiled one of the most repeated sound bites of the 90s: “Since the onset of the War on Poverty, the United States has spent over $5.3 trillion on welfare. But during the same period, the official poverty rate has remained virtually unchanged.” This is totally false; the poverty rate fell from 19 to 11 percent between 1964 and 1973. And the U.S. has spent only $700 billion on AFDC and food stamps since 1962. To get his inflated $5.3 trillion figure, Rector’s “war on poverty” had to include solidly middle class programs like student loans, school lunches, job training, veterans pensions and Medicaid, three-fourths of which goes not to the poor but the elderly and disabled. (6)”

      http://www.huppi.com/kangaroo/L-thinktank.htm

      There is no “welfare” money sitting around to help Walmart workers. We spend very little on the working poor (outside of the bare minimum of medicaid.)

      That will need to change if the Walmartization of society continues apace.

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      • Yes, of course the trillion bucks is being greatly spent on the middle class. We tax each other to pay ourselves, with politicians and bureaucrats standing in the middle and laughing at our folly.

        Your desire to fund the working poor by demanding others rise up to the challenge is not very fair, is it?

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        • We don’t tax each other to pay each other. We tax each other, with the wealthiest and the upper-middle class paying the most (though that’s at risk) to pay those in the middle-class who might need help at the moment (say a lower-middle class student gets help paying loans or Pell Grants) who will then be more able to pay it back later. (For example, a lower-middle class student gets Pell Grants for Undergrad, does well in life, and then later becomes someone who pays more in taxes.)

          I think gov’t programs that help the middle class are good and necessary. But they are beside the point.

          Rector, the author of the trillion dollars for welfare dishonesty, seems to think all of those middle class programs count as welfare for the poor, or at least that’s what he wants the rubes to hear.

          The truth is, about 5 percent of the federal budget is spent on the non-working poor: http://www.motherjones.com/kevin-drum/2012/02/how-much-do-we-spend-nonworking-poor

          It is harder to calculate how much is spent on the working poor as opposed to the those who are higher up in the middle class.

          My point is simple: as inequality increases, if we don’t keep increasing the minimum wage, if current trends continue, we will have to start spending a lot more on the working poor. And as we do that, Walmart will be -as others have pointed out- able to pay less.

          I think the solution we’ll eventually get is this: Everyone in America will get a basic living wage and basic healthcare along with the option of getting subsidized loans (paid back dependant upon how much you earn after your education.) You will then get more money on top of your government cash if you take a job at Walmart or some such, adding up to a good-living wage. If your job pays enough, you will forfeit your basic living wage, but you won’t care. If you continually don’t work at all for more than a year and lazily collect your basic living wage, you will be entered into a selective service (maybe for 1 year, not all military, maybe also peace corps or teachers aid or whatever, where you will be trained, and people with children will have to be given selective service options that allow them to stay with their child) lottery or you will be given the option to forfeit your basic living wage.

          Maybe.

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        • “to fund the working poor by demanding others rise up to the challenge is not very fair, is it?”

          No, it is fair to have a system that redistributes wealth so as to benefit the worst off.

          Stanford Encyclopedia, Rawls on redistribution, fairness, and justice:

          “Rawls’s second principle of justice has two parts. The first part, fair equality of opportunity, requires that citizens with the same talents and willingness to use them have the same educational and economic opportunities regardless of whether they were born rich or poor. “In all parts of society there are to be roughly the same prospects of culture and achievement for those similarly motivated and endowed” (JF, p. 44). So for example if we assume that natural endowments and willingness are evenly distributed across children born into different social classes, then within any type of occupation (generally specified) we should find that roughly one quarter of people in that occupation were born into the top 25% of the income distribution, one quarter were born into the second-highest 25% of the income distribution, one quarter were born into the second-lowest 25%, and one-quarter were born into the lowest 25%. Since class of origin is a morally arbitrary fact about citizens, justice does not allow class of origin to turn into unequal real opportunities for education or meaningful work.

          The second part of the second principle is the difference principle, which regulates the distribution of wealth and income. With these goods inequalities can produce a greater total product: higher wages can cover the costs of training and education, for example, and can provide incentives to fill jobs that are more in demand. The difference principle requires that social institutions be arranged so that any inequalities of wealth and income work to the advantage of those who will be worst off. The difference principle requires, that is, that financial inequalities be to everyone’s advantage, and specifically to the greatest advantage of those advantaged least…

          The difference principle gives expression to the idea that natural endowments are undeserved. A citizen does not merit more of the social product simply because she was lucky enough to be born with gifts that are in great demand. Yet this does not mean that everyone must get the same shares. The fact that citizens have different talents and abilities can be used to make everyone better off. In a society governed by the difference principle citizens regard the distribution of natural endowments as an asset that can benefit all. Those better endowed are welcome to use their gifts to make themselves better off, so long as their doing so also contributes to the good of those less well endowed. “In justice as fairness,” Rawls says, “men agree to share one another’s fate.” (TJ, 102)”

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          • Shazbot,

            I would not agree to live in that society, so it wouldn’t be fair to me would it? My guess is Walmart wouldn’t agree to it either, since you seem to be picking them at random in a totally partial way after the fact rather than before.

            I believe a better definition of fairness is as follows. A game or transaction is minimally fair if the players agree to the rules. To make it more fair, provide multiple alternatives and allow them to choose the best game or transaction for them. Thus you can get people with different values to agree with playing or interacting with others .

            If the players choose Rawls rules, then they will indeed be playing a fair game according to them ,and that is what matters. My guess is you and Rawls would choose his system. I would choose another based upon what really seems to work in the real world.

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            • “I would not agree to live in that society, so it wouldn’t be fair to me would it.”

              So your definition of fairness is: X is fair if X maximizes Roger’s self-interest?

              I just took a break from the family, but that is crazy, no?

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            • Sorry, I didn’t read the rest of your comment. You have a definition of fairness (which is a worse one than I thought).

              Rawls says the rules we select for society (i.e. how to organize the basic structure of society: the nature of democracy, economic issues, the extent of property rights) are fair to everyone if everyone would choose those rules (on the basis of pure rational self-interest) from behind the veil of ignorance. (The veil prevents you from knowing who you are in society, i.e. that you are rich Roger and not a poor black, blind person born to alcoholic, child-molesting parents.)

              The problem with your way of choosing rules is that no one would agree to any set of rules. The powerful would select rules that benefit them, the poor would slect rules that benefit the poor, but no set of rules could be agreed to by everyone. If we accept your method for determining fair rules, then there are no fair rules, because there are no rules that everyone would agree to.

              But from behind the veil of ignorance, everyone will view society similarly, because everyone is rational, self-interested, and equally ignorant of their own situation.

              But from behind the veil of ignorance, we would be very worried about being the worst off in society, so we would want opportunities and the resources needed to get those opportunities to the worst off.

              Happy Thanksgiving from a Rawlsian.

              Back to dinner.

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                • Judas,

                  I find it is more productive to reveal my half formed opinions to the light of discussion. This allows me to refine, revise and hopefully improve them. Obviously I have a lot of room for improvement.

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              • Shazbot (and Murali if out there)

                I basically agree with Rawls veil, with caveats. First, what I like about it is that it leads to impartial rules. The classic example is the procedural fairness of dividing a pie… You cut and I will choose.

                Let me clarify how my views of fairness possibly* differ from Rawls’:

                I believe people have different values and will thus tend to choose different social arrangements that meet their values from behind the veil. This implies more decentralized institutional arrangements.

                I believe many people will tend to choose outcomes based upon lifetime expected value adjusted for time preference rather than at a point of time.

                I suspect I place a lot more value on incentives and the dynamic affects of actions and interactions. How we distribute the spoils of our efforts is the most important decision in what and how we create. And creating value, over the long term eats distributing value for launch. In other words, a creative society over the long haul is going to be unimaginably better for most than a more equal but uncreative society.

                I suspect most people would choose the society which would allow them to optimize their expected lifetime earnings, rather than minimize downside risk. In other words, I believe most people are less risk averse.

                Finally, I think people need to be able to choose not upon intellectual rationalizations, but based upon how societies actually work. Societies are complex adaptive systems, and how we think they will work in a thought process is not how they really work. Thus I would choose based upon empirical evidence of how people actually tend to perform according to my values.

                As to your argument that people would not ever agree to rules, this is both incorrect and yet at the same time more true for Rawls’ rule set than for mine. Why?

                First, rules and institutions tend to evolve. We can influence them in directions that make them more like Rawls’ or more like mine. Many institutional arrangements are established between two people and expanded out. I agree voluntarily to play with Dave, and he agrees to play with me. Agree to rules and others can join in.

                Over the last ten thousand years, millions of games and institutional and social arrangements have evolved, expanded, competed with each other, died out, flourished and proven themselves. Of course the rich would love to have rules that give them advantage, and the poor look for the same. Some societies have discovered ways for the two to work together voluntarily. One side cuts, the other chooses.

                * I say possibly, because I find Rawls, confusing, and really do not care whether he agrees with me or not, I seek wisdom on fairness not wisdom on what he thinks.

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                • Some basic Rawls stuff:

                  “I believe people have different values and will thus tend to choose different social arrangements that meet their values from behind the veil. This implies more decentralized institutional arrangements.”

                  Rawls idea is that X is fair if self-interested choosers would choose X from behind the veil. So, in that sense, their moral “values” are irrelevant to what is fair. This is one the advantages of Rawls’ theory.

                  “And creating value, over the long term eats distributing value for launch. In other words, a creative society over the long haul is going to be unimaginably better for most than a more equal but uncreative society.”

                  I’m not sure I understand this. I think you mean that socialism kills incentives and creativity, i.e. that we need to reward motivation and good choices and “winning” in economics. I think Rawls agrees. But we can redistribute goods and still have markets that reward winners and punish losers. In fact, if we took away all inheritance, the parents of rich kids would be more motivated to work, and the children of poor kids might feel more empowered (instead of believing, accurately, that their odds of success are grim) to compete. But to organize society so that there is fair competition amongst all requires distributing wealth from the top to the bottom. It also requires regulations to prevent the wealthy from gaming the system or passing off externalities to everyone else, etc. It also means redistributing resources and opportunities and wealth to those who were born unlucky to have certain disadvantages: born into poverty, bad education, disability, bad parenting, etc.

                  “n other words, I believe most people are less risk averse.”

                  I’m sympathetic to this criticism. But it misses the point. See here and Harsayani’s critiques on risk aversion.
                  http://plato.stanford.edu/entries/original-position/

                  In brief, you are somewhat risk averse if you -before the ACA- were young and bought health insurance. Different levels of risk aversion are all plausibly rational, but all Rawls needs to prove that the difference principle is what you would choose is that you would want, out of self-interest, to insure yourself against being born into horrible poverty or disability (or both) without some aid from the state. If you sometimes purchase insurance (or save your own cash as a kind of insurance) against massive loss, then you are risk averse enough to choose the difference principle from behind the veil.

                  “Finally, I think people need to be able to choose not upon intellectual rationalizations, but based upon how societies actually work. Societies are complex adaptive systems, and how we think they will work in a thought process is not how they really work. Thus I would choose based upon empirical evidence of how people actually tend to perform according to my values.”

                  Rawls agrees. From behind the veil of ignorance, you see society as it is. (You just don’t know who you are.) So, you know for instance that markets maximize overall wealth, including creating wealth at the bottom for the worst off. But you know that a safety net will not destroy the market and benefits the worst off. Etc. Etc.

                  The rest of your post is pretty much incomprehensible to me.

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                  • To the extent Rawls does agree with me, I think he is right.

                    I have not yet picked out Harsayanis critiques, as the article is really long and complicated. I will try to work through it though.

                    As I stated I totally agree people would wisely choose a society with safety nets and with strong incentives for creating value.

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            • A game or transaction is minimally fair if the players agree to the rules.

              But which set of rules is the one that people ought to agree on? That’s been your argument all along, actually – that people ought to adopt and play by different rules. Take unions as an example: the rules union members accept are that they get to leverage higher wages out of employers by collectively bargaining. The employer in turn accepts a rule whereby management gets to leverage lower wages out of employees by breaking the union, or hiring scabs or shipping jobs overseas. The problem is that management’s rules – that they permitted to seek and achieve the lowest possible labor rate – doesn’t require any agreement on the part of labor to be acted on.

              Of course, most liberals, it seems to me, are inclined to think that the desire of management to maximize profits isn’t negotiable, or contingent, or up for a public vote, or part of a contract. It isn’t an agreed upon rule, but an acceptance of a basic fact. But how that desire manifests is negotiable. (Those are the rules we’re talking about here, yes?) And liberals think that if management’s desire to maximize profits is entirely open ended, then labor needs some leverage to act as a counter-balance and make the game fair. And that means permitting labor to seek the highest wages possible thru collective bargaining, but other means as well.

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              • SW,
                Just to clarify, I think people playing the same game need to play by the same rules.  I am encouraging as decentralized institutions as possible or practical so that those with different values can play different “games” with like minded individuals.  That said, over time, some rules prove themselves over time and become the standards.  Some rules need to be society wide.  To further complicate it, sometimes standards are better when set consistently so that people can experiment together without creating chaos.  

                I believe the rules that lead to the best long term prosperity of humans in regards to wage negotiations is loosely grouped around mutual agreement and open entry/exit and competition. This is a hypothesis on my part though, and I recognize both that I could be wrong or that it could be wrong tomorrow, or that it may not match others values. As such, I think it is good that people experiment around this rule set, especially if they can do so without using coercion. 

                I am of course fine with them bargaining collectively, or striking collectively. I am also fine with management firing them collectively.  It is a voluntary contract of employment and should be so on both sides. And the should comes because I see all economics facts pointing out that this leads to more happy smiling prosperous humans that spend their days debating on the Internet as opposed to toiling all day in the fields before they return to their clay huts. 

                The reason wage negotiations are fair is that they do have the same leverage. Employees are competing with other prospective employees for jobs.  Employers are competing with employers to hire people.  Characterizing it the other way is silly. Does this make sense?

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  9. If Wal-Mart raised wages, more people would apply to work there. Some of them would have more impressive qualifications than the current employees. “Job gentrification” would put them out of work.

    If that sounds good to you, by all means, advocate it.

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      • Or, if you feel there’s a better way to improve the lot of the working poor, write about it! You say that you favor a functioning welfare state, and I take you at your word; but you almost never seem to get angry about the plight of the poor, the way you do about drug policy or drones. You don’t spend that much time writing about it, either; it’s usually an aside in a post, designed to deflect liberal criticism rather than bring about actual change (and the fact that the changes you favor are fundamental transformations that most likely won’t ever happen completely makes you even more vulnerable to this charge).

        In short, Jason, I believe that you favor “a no-deductions negative income tax with a substantial guaranteed minimum income, minus the entire welfare state”. But I also believe that it’s not a high priority for you; that you’re willing to sacrifice almost nothing to gain progress on this front. I don’t believe that someone trying to get by on $14K pisses you off the way that many other issues do, or the way that it obviously does anger Elias.

        And that’s why liberals and libertarians can’t agree on the welfare state. Not because our visions are logically incompatible–if we both wanted to, these are the kind of differences that could be hammered out in any form of coalition politics. But because we place drastically different weights on different priorities.

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    • Perhaps more importantly, this may cause people who are qualified for more productive work to end up taking jobs at Walmart, and the economy loses whatever value they would have created in that more productive job.

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        • If for whatever reason they find their current jobs less desirable, sure. I had a friend who quit a high-paying job in the software industry to work retail. The heterogeneity of preferences is easy to underestimate.

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          • I’m fine with accepting a certain amount of heterogeneity of preference, but if you think a.) the market is rational, and b.) people will leave better opportunities for worse one’s en masse because of a slight shift in the short-term attractiveness of the worse opportunity, then there’s something wrong in your thinking.

            There’s also something wrong in your thinking if you think there are a lot of skilled workers making $9.50 long-term who will be excited about the possibility of making $.25 more long term. The people who would leave their jobs for newly raised Walmart wages are, in general, the people working at Walmart’s competitors or with similar skill levels to existing Walmart employees. I mean, it’s not like anyone’s suggesting that Walmart pay nurses wages, or hell, even medical assistant wages.

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              • Roger, not with a quarter, no. The process is, as you’ve noted (I point out again), a market one: Walmart and its employees (unionized or no) come to an agreement on wages, and either the people can live on them or they can’t, and either Walmart continues to make the profits it wants or it doesn’t, and we start the next round of coming to an agreement. The reason this doesn’t happen now is because Walmart is able to crush any attempt at unionization.

                If you’re wondering why people on the labor end look at this as an antagonistic relationship, there’s your answer. That and because there are people who say these are the “market wages,” and the employees of Walmart should be grateful, or get another job.

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                • Chris,

                  Again I am confused. Yes, every day can be viewed as an open employment contract between Walmart and each employee. They have a job that needs to be done, and the wage they pay is the level that someone who can do it well is willing to accept. If they pay more than that, then someone else can come and say, “I will do the same job for one penny less.”. As a profit maximizing firm, they will accept the one cent lower rate. Eventually nobody offers their services for less.

                  Of course there aren’t just millions of potential employees, there are millions of potential jobs and thousands of competing potential employers. These bid up wages. Supply then meets demand.

                  If Walmart voluntarily or if an employee cartel used threat of violence to achieve wages that are different than this level, then resources would be allocated less efficiently and productivity would be lower. Agreed?

                  An example, if they paid double wages, then the result would be higher skilled workers would apply for these jobs instead of doing the job that optimizes their skills ( you just raised the entry level above the more demanding job.) Thus pverqualified people would get these jobs. The unskilled workers you want to help would now need to look for a new job, but if you eliminated all these jobs, then you also eliminated the need for these workers. Now we have structural unemployment, higher skilled workers misplace in lower skilled jobs. Less total productivity and lower GDP divided among the same number of citizens.

                  This is really complicated, and I appreciate any corrections to this basic, probably oversimplified model. However that is my take on it.

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                  • if they paid double wages, then the result would be higher skilled workers would apply for these jobs instead of doing the job that optimizes their skills ( you just raised the entry level above the more demanding job.) Thus pverqualified people would get these jobs.

                    And here the argument is again. An objective measure of what constitutes an “over qualified person” taking a job is outside the scope of libertarianism, it seems to me, and confuses the goals of the theory. Libertarianism is a theory about liberty (based on the NAP, primarily), and voluntarism. If a person is presented with options A and B, and they choose B even tho they are overqualified for the job, they are acting rationally and freely within the libertarian framework. It’s the ideal (optimal) outcome. To measure that person’s choice against a model where everyone works to the level of their skill set is not a libertarian model, it seems to me. It’s an ideal that logically follows from maximizing liberty. A libertarian can’t use both metrics to justify a policy or position, at least as I see it.

                    If overqualified people are taking jobs that under-utilize their skill set, then that is either a) permissible within libertarianism, or b) libertarianism isn’t primarily concerned with maximizing liberty (since the overqualified person chose that job freely and rationally as the best option available to him or her).

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                  • Fuck all. HOW do you fix the finance sector hiring OVERQUALIFED folks?
                    Yeah, sir, that’s my fucking problem. I don’t give a jack-all damn about people who aren’t gonna make me new awesome shit, and their fucking productivity. Call me selfish, I call it fucking practical.
                    Some forms of overqualified are a LOT more painful for the economy than others. Soem people are far more qualified to create new markets, new ideas, more cool shit than others.

                    Oh. Yeah. Solve That for Me.

                    (I like an inheritance tax, myself, as it drops money into the hands of consumers fromt he hands of “investors” — aka lazy people who don’t work for a living)

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        • This is why you don’t need 100% of jobs to be unionized in order to raise wages pretty much across the board. If unionized Walmart pays $9.75, then my boss will have to pay something more than that to employ my number-crunching or real-time programming skills. IIRC, the “magic” number is about 30% — that many union jobs and all employers have to pay roughly union wages in order to attract labor.

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          • Having worked at Walmart during my impressionable years, I feel like I can say a few things about it.

            First, the jobs at Walmart completely suck. You get a lot of grief for little cash compensation.

            Second, when some union reps came around, the store managers rounded up all the employees for the morning meeting and told us, straight up, not to talk to them, and that we didn’t need to talk to them, because they already treated us so well. Even as a teenager this struck me as somewhat peculiar.

            Third, Walmart had net profits of $15.4 billion in 2011. They also had 2.1 million employees worldwide. I am not an economist, but I am pretty sure that means that a pay hike of around $7,300 per year for every employee (some of whom are already paid pretty well, admittedly; ie managers), would consume all of their profits.

            Assuming the average Walmart schlub works 25 hours a week, 52 weeks a year, that is 1300 hours. So, an increase of $5.5 dollars would be the absolute, untenable maximum wage increase.

            If the woman in the OP making $14,000 a year is typical, then she would be bumped up to around $21,000.

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              • I doubt anyone will actually read this comment, since it is not exactly timely, but my point was to ground this conversation in something other than invective.

                My main point was to establish the maximum amount of wiggle room that Walmart has in terms of adjusting wages (without addressing how the wage increases would actual interact with Walmart’s gross earnings. Obviously there is a relationship there, but I am not clever enough to suss it out).

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              • … you’ve never bought stocks, like, ever, have you? Utilities never run a profit (it’s why people invest in them!) Most of the biotech sector doesn’t run a profit, like, ever (if they actually find something that works, they promptly skyrocket in value and get bought up by MERCK or some other big corp).

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            • This assumes no gains in productivity from greater compensation, in increased morale, better retention, or any of the other things that seem to work for Costco. You know, no one would make this argument about, say, office chairs (“We have to buy the very cheapest ones, and if we all get chronic lower back problems, we owe that to the shareholders!”) but it’s so easy to assume that non-white-collar workers are purely a drain on the people who actually matter.

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        • By the way, I didn’t say that people would leave their current jobs to work at Walmart. The more likely scenario is that people who could do somewhat better with some work choose not to put in the effort to get a better job, because Walmart pays enough. It’s not going to deter someone from going to medical school, but maybe someone who otherwise would have taken computer classes at community college to get an office job decides just to stick it out at Walmart.

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    • Money that goes to the Walmart employees gets spent in the local economy instead of disappearing into the bank accounts of the Walton’s to remain unspent. Additionally it increases tax revenue.

      This local growth creates new opportunities for the displaced workers. The increased tax revenue makes providing services for the displaced workers more affordable as well.

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        • Sadly as my wife, who has run several doctors’ offices, tell me it is hard to get folks to even show up on time these days. She has told me that she will forgive a lot if someone shows up on time on a regular basis. Yet these same folks always want higher salaries when they have few if any skills. It is easy to get on the gov’t dole. How far this country has fallen .

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          • Ah, but now we have the best of both worlds. Walmart gets its people to turn up on time … aaaand… those people are on the Gov’t Dole. Isn’t capitalism great?

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          • Seriously?
            Your argument is yet another variant that American workers (present company excluded, I am sure) are lazy bums who refuse to work hard, but prefer to live off the dole.

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              • It may very well be that the bakers calculated that the pay they were offered was worth walking away from.
                Which is exactly what businesses do every single day of the week, when they strategically default.

                You have heard that theory that conservativism and libertarianism are actually just elaborate defenses of authoritarians, of a feudal mentality of obedience to Rightful Authority?
                This is where that theory gets its start.

                We both agree that that the company was mangled by inept management; yet it is the action of the workers that you find morally objectionable- the actions of the management appear to be acceptable to you.
                Why?

                As an analogy, if the management had asked for more favorable terms from the bank instead of the union, and the bank refused, tipping the company into bankruptcy- would you be angrily accusing “those bankers” of destroying the company?

                Why is self-interest on the part of workers morally reprehensible, yet not on the part of management?

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                • I don’t know the full history of the corp but I do believe that the current owners bought it and tried to make a go of it. Without the the current owners who took the risk to buy the crop and fix it, the unions would have been out of jobs a while ago. I understand and appreciate self interest but at a certain point it seems that having a job you don’t like is better than not having a job as it allows you to survive until you can find a better one. Self interest is great until it becomes a substitute for common sense. Your banker analogy it fails b/c the unions helped create the problem. From the article I linked to, “Unlike some non-unionized rivals, the maker of Wonder Bread and Drake’s cakes had to navigate more than 300 labor contracts, with terms that often strained efficiency and competitiveness, Hostess officials have said. In some extreme cases, contract provisions required different products to be delivered on different trucks even when headed to the same place.” When they pull fish like like that I don’t have any sympathy for them.

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                  • Scott,

                    The company was screwed in so many ways, but the biggest reason was that there was no viable plan to grow revenues and increase profitability. It came out of bankruptcy too heavily leveraged and without any plan to increase revenues and profitability, there was no way to reduce the leverage as a percentage of the total capital structure. That someone thought this was a good way to emerge from bankruptcy strikes me as crazy.

                    Yes, the contracts with the unions were a burden (one of many) on the company (and every capital source looking to invest into the company stated as much), but why is this only the fault of the unions? Management accepted the terms of the agreements. Why is it that when collective bargaining agreements are discussed, the unions bear the brunt of the “collective bargaining” component but people (especially right-leaning individuals) ignore the “agreement” component.

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      • That’s one thing that I’ve been thinking about.
        Maybe I’m something of a snob, but I think unions work better where the type of work is more specialized and require a higher level of training.

        And a couple of other things here:
        I’ve known a few people in the Riverside-Ontario area that were members of the grocers union. California has a system that sustains union membership for grocery workers.

        That said, there are several types of establishments that are known as “grocers.”
        There’s the model where everything is stacked in boxes and you bag your own groceries.
        There’s the more upscale version with an expanded deli section, some of which now have wi-fi.
        There’s the type with high shelves where you point at a product and a guy with a stick knocks it down from the shelf for you.

        A lot of different business models doing the same thing.

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    • If Wal-Mart raised wages, more people would apply to work there. Some of them would have more impressive qualifications than the current employees. “Job gentrification” would put them out of work.

      In some cases, yes, in other cases, it would motivate WalMart employees who currently are undermotivated on account of working nearly full time and still being poor to come to work with a better attitude, care more about helping make the shopping experience at WalMart a bit better, and keep their job. I think it’s an overstated argument that somewhat better wages at WalMart would cause a whole-sale switch-out of the labor force.

      However, I don’t think that an argument about the social value of low prices is overstated. I personally would have no problem if a rise in wages at WalMart -sky allowed/caused WalMart to rise slightly above its current low-price-bad-shopping-experience market point. Maybe something that subtly apes Target’s experience (although I’m not really sure how much of that shopping experience comes directly from the employees). But then, despite not being particularly flush myself, I already don’t shop at WalMart because the experience is so bad and the price difference just isn’t worth that much to me. But it’s clearly worth ti to some. Should we will that the near-lowest price option of WalMart be priced up somewhat by better ages for its employees? I’m not sure who’s getting done over here: the public (especially others who work for low ages not at WalMart) if wages at WalMart go up and with them prices, or WalMart employees if prices stay low at the cost of wages staying low too. Again, I know I’d be happy if WalMart became a nicer place to shop, but there would be a loss for others. Our economy could currently use a bit more price-wage inflation, but rising prices at WalMart would hit everybody (including those of us who don’t even shop there), while a corresponding wage increase would only affect WalMart employees (if WalMart increased its wages, would that put upward pressure on wages at Target the way that rising prices at WalMart would allow prices to float up at Target as well?).

      These are the questions that to my mind should determine whether we want wages to go up at WalMart. We shouldn’t will there to be jobs that pay really badly just so that the very marginally employable can hold them. Those people are (according to the argument) doing those jobs now. We shouldn’t assume that the prospect of better pay couldn’t offer enough incentive for them to be able to improve their performance enough to be able to keep them. That’s an incredibly condescending and disempowering assumption to make.

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        • Costco is low prices for affluent people. It’s still a question whether really-low prices for people without much cash-on-hand are important to preserve. Tbh, I’d be perfectly happy if we had much better income assistance for the working poor (like you seem to endorse in this thread), and let WalMart float where it wants on the shopping-experience/price matrix. Thing, I think it’s comfortable with the place it occupies. If there were better income assistance, it would be taxed more & may be forced into providing a better experience for everyone, shoppers & workers alike.

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          • True. Costco is only 1/10 the size of Walmart and its product selection [except for toilet paper*] is whatever they can get a deal on. The article was interesting because Costco does indeed pay better, and has happier and more productive workers, with a retention rate of 75% rather than Walmart’s 50%**.

            *They come for the toilet paper, they stay for the 10-lb tub of Greek yogurt.
            http://money.msn.com/investing/latest.aspx?post=e8a6e01c-31c6-4846-b880-e43773d53b26

            **”A 2004 Business Week study ran the numbers to test Costco’s business model against that of Wal-Mart. The study confirmed that Costco’s well-compensated employees are more productive.

            The study shows that Costco’s employees sell more: $795 of sales per square foot, versus only $516 at Sam’s Club, a division of Wal-Mart (which, like Costco, operates as a members-only warehouse club). Consequently Costco pulls in more revenue per employee; U.S. operating profit per hourly employee was $13,647 at Costco versus $11,039 at Sam’s Club.

            The study also revealed that Costco’s labor costs are actually lower than Wal-Mart’s as a percentage of sales. Its labor and overhead costs (classed as SG&A, or selling, general and administrative expenses) are 9.8% of revenues, compared to Wal-Mart’s 17%.

            By compensating its workers well, Costco also enjoys rates of turnover far below industry norms. Costco’s rate of turnover is one-third the industry average of 65% as estimated by the National Retail Foundation. Wal-Mart reports a turnover rate of about 50%.

            With such rates of employee retention, Costco’s savings are significant. “It costs $2,500 to $3,000 per worker to recruit, interview, test and train a new hire, even in retail,” said Eileen Appelbaum, Professor at Rutgers University’s School of Management and Labor Relations. “With Wal-Mart’s turnover rate that comes to an extra $1.5 to $2 million in costs each year.”

            Other analysts of the retail industry agree that happier, well-compensated workers help generate bigger profits. George Whalin, president of Retail Management Consultants in San Marcos, Calif., disagrees with many of Wal-Mart’s critics, but said: “There’s no doubt Wal-Mart and many other retailers could do a better job taking care of their employees. The best retailers do take care of their employees — Nordstrom’s, Costco, The Container store — with fair pay, good benefits and managers who care about people. You have fewer employee issues, less turnover and more productivity. It lessens costs to the company.”

            Still, Wall Street analysts intent on cutting up-front labor costs tend to frown upon Costco’s model. “Costco’s corporate philosophy is to put its customers first, then its employees, then its vendors and finally its shareholders. Shareholders get the short end of stick,” said Deutsche Bank analyst Bill Dreher.”

            Average Pay
            Wal-Mart: $9.68/hour
            Costco: $16/hour

            Health Plan Costs
            Wal-Mart: Associates pay 34% of premiums + deductible ($350-$1,000)
            Costco: Comprehensive; employees pay 5-8% of premiums

            Employees Covered By Company Health Insurance
            Wal-Mart: 48%
            Costco: 82%

            Employee Turnover (estimate)
            Wal-Mart: 50%
            Costco: 24%

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              • Walmart .5% margin. Not much wiggle room. If McArdle is on your flip-your-lid list, do not read.

                http://www.thedailybeast.com/articles/2012/11/23/unions-organize-walmart-protests-rest-of-the-nation-goes-shopping.html

                Recessions are also a time when employers don’t necessarily have a lot of profits to give up. Walmart’s $446 billion of revenue last year was eye-popping, but its profit margins are far from fat–between 3% to 3.5%. If they cut that down by a percentage point–about what retailers like Costco and Macy’s have been bringing in–that would give each Walmart employee about $2850 a year, which is substantial but far from life-changing. Further wage improvements would have to come out of the pockets of Walmart’s extremely price conscious shoppers. Which might be difficult, given how many product categories Amazon is pushing into.

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                • That’s about a third of the avg. mortgage payment per year (and this for people not in Boswash!), or half of what a car costs, if you’re lucky. I’d say that has the potential to be life-changing, particularly in a two person family.
                  But what the hell do I know? I just read the numbers…

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            • Shareholders get the short end of stick,” said Deutsche Bank analyst Bill Dreher.”

              A priori, no doubt. Because CostCo doesn’t employ the “standard” model for maximizing profits. Profit/hourly employee seems like pretty good refudiating evidence, tho.

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            • Nice post, Tom.

              I admit that my opinion of Wall Street analysts was solidified a while ago.
              Back when Apple was in the doldrums, I was listening to a radio show where several of them agreed than Macs needed a new operating system, and it was 100% fishing obvious that not a single one knew what an operating system was.

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