Wednesday, October 26, 2005

Wishin' and Fishin'

Wal-Mart's share price has hit the skids, its customer base losing enthusiam and cutting back spending on anything but the essentials--the main culprit appearing to be higher-priced gasoline.

This week Wal-Mart CEO Lee Scott started fishing for Congress to increase the Minimum Wage... so that customers can spend more in his stores. However, he's not willing to make adjustments to what Wal-Mart pays its employee-associates. Careful what you wish for--you might get it.

Here are the numbers:

The Minimum Wage is $5.15 an hour.
The average annual income for a Wal-Mart family is $40,000.
Wal-Mart's full-time hourly employees make an average of $9.68 an hour.
The Labor Department reported that in July retail workers, on average, earned about $12.40 an hour.

Is Wal-Mart going to raise the wage rates it pays?
Not likely…Wal-Mart can’t afford it.
So why does Mssr. Scott believe anyone else can easily raise their wages?
Not clear--but he sure wants customers to be able to spend more at Wal-Mart and Sam's.

Here’s the rest of the argument:
The Minimum Wage was never intended to be a living wage.
The Minimum Wage is set for at burger flippers and grocery sackers—primarily wages earned by part time, teenaged workers.

The Minimum Wage is not pegged to be a comfort zone—rather, the low rate should be a motivation for an individual to move up and move on to more challenging tasks with higher pay incentives.

Just as Sears has a "softer side," a higher Minimum Wage would have some positive results...

  • Reducing low-paid, unfair, and exploitative work
  • Reducing--but not eliminating-- the dependency of the low-paid on welfare benefits for a greater savings of tax dollars
  • Stimulating economic growth through increased purchasing power of workers who might otherwise be paid a sub-standard wage

But, these minimal benefits (no pun intended) come with a price, however:

  • A higher Minimum Wage limits employment of low-wage earners, limits increasing employment at sub-minimum levels, thereby generally increasing unemployment
  • A higher Minimum Wage raises employment barriers for the inexperienced or less-educated who clear the higher bar: if a worker's labor is not worth the minimum, he may not find employment at all
  • A higher Minimum Wage hampers economic growth by increasing the cost of labor (which is why, hypocritical as it seems, Wal-Mart won't raise its pay, even if Congress does hike the minimum wage)
  • A higher Minimum Wage would increase the price of goods and services, since employers can pass on employment costs in the form of higher prices.

So what's a retailer-who-would-influence-Congress to do?

Some who oppose Minimum Wage hikes suggest a negative income tax as an alternative way to support lower-paid jobs. Well, guess where that money would come from? Not those who are paying for the products they buy with their mini-wages, but by those who pay taxes--vous et moi.

It’s been said that if you give a man a fish, you feed him for a day; teach a man to fish, and he can feed himself for the rest of his life.

There is a corollary: Pay a man a Minimum Wage, and you fill his pockets for a week; teach him how to better his lot through personal improvement and education, and he not only earns more, but is able to contribute more to society as a higher-compensated employee.

The Journal of Economic Perspectives' Winter 2005 edition reports two-thirds of academic economists at top universities agree (is that like the 9 out of 10 dentists who chew gum?) --a higher Minimum Wage increases unemployment among the young and unskilled.

The irony is that should Congress raise the Minimum Wage, fewer businesses would be able to afford entry-level workers, including Wal-Mart--which would also notice fewer customers to greet for the Holidays.

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