The Wal-Mart ”living wage” issue

The Washington DC city council passed a bill in June requiring businesses with $1 billion in annual sales and stores with more than 75,000 square feet to pay at least $4/hour above the legal minimum wage ($12.50/hr vs the legally required $8.50/hr). This is aimed primarily at Wal-Mart, though other big box stores like Home Depot and Lowes would be affected as well. Wal-Mart (and some other big box stores) will probably simply not build more stores in the city if this law is signed by the mayor, thus depriving the city of several thousand new jobs. This is another case of well-meaning but illogical thinking – trying to make outcomes equal instead of making opportunities equal.

This isn’t rocket science. Wal-Mart sells things as cheaply as it does (to the great benefit of the poorer segment of the population) simply because it keeps labor costs down. Raise the labor costs and the goods would no longer be so inexpensive. Also, Wal-Mart offers a lot of part-time jobs, employing a lot of people who wouldn’t be employed otherwise. Make that employment unprofitable by, say, requiring the company to pay more than the work is worth, and those jobs will simply disappear.

As I have argued before, the business model is really very simple. The people a company hires must, directly or indirectly, produce more saleable value than they cost in wages and benefits, or the company goes out of business. Of course companies try to keep wages as low as possible given the dynamics of the labor market, and employees always would like higher wages.  But if the company has to pay a worker more than that worker’s labor is worth, it simply will find another alternative – eliminate the job, automate it, or outsource it to a lower wage area or nation. It has to, to stay in business.

The only sustainable way for workers to increase their wages is to acquire skills worth more in the labor market, so that it is worth it for a company to employ them, even at a higher wage. That means workers have to go back to school or apprentice themselves and upgrade their skills.  Some people don’t want to do that.  It’s a free country so they don’t have to, but then they have to live with the consequences – unemployment or lower paying jobs.  No amount of well-intentioned legislation is going to change this simple fact.

In fact, one simple rule of capitalist societies is that no one is “owed a job”, or owed a given rate of pay. If an individual wants a job that individual has two choices (a) acquire skills some company is willing to pay for, or (b) start one’s own business. That’s it. There is no free lunch, much as some people wish there were.

We in America (and Europe as well) have a severe structural problem right now. Many of the lower skill jobs in the economy have simply disappeared, outsourced or replaced by automation. No amount of government intervention or legislation, well-meaning as it may appear - is going to change that. The work force - all of us - simply have to adapt, and for many people that means going back to school and retraining themselves and improving their skills. Some simply can't or won't do that, for a variety of reasons. That is their choice, but it has consequences.