TCS Daily

French-ifying Retail America

By James D. Miller - June 9, 2005 12:00 AM

Wal-Mart is being criticized for charging low prices and hiring unskilled workers. Of course, that's not how its critics, including several congressmen, put it as they assail Wal-Mart for not paying its employees more. But unskilled workers would suffer the most if Wal-Mart were politically coerced into paying higher wages.

If Wal-Mart raised salaries, it would have to employ fewer workers. Higher wages would force Wal-Mart to automate more positions and perhaps even open fewer stores as the high salaries forced Wal-Mart to do whatever possible to find offsetting expenditure cuts.

Paying higher wages would also cause Wal-Mart to substitute greater for lesser skilled employees. For example, at $8 an hour you might be happy to hire a neighborhood teenager to cut your grass, but if you were coerced into paying $20 an hour for lawn care you would probably drop the teen and hire a landscaping company. Like every firm, Wal-Mart always tries to hire the best people it can for the wage it offers. If Wal-Mart paid higher salaries, it would be able to attract employees with greater skills and so would employ fewer unskilled workers.

Unskilled employees not currently working at Wal-Mart would suffer the most if Wal-Mart had to pay higher wages. Even though Wal-Mart's wages aren't great, they're still above minimum wage. Other retailers, in competition for employees with Wal-Mart, often pay above the minimum wage just to hire people who would otherwise go to Wal-Mart. But if being forced to pay higher wages stopped Wal-Mart from hiring unskilled workers, other retailers wouldn't have to offer as much to employ these workers themselves.

Unskilled workers would also suffer greatly if Wal-Mart had to raise its prices to afford paying higher wages. Wal-Mart has effectively raised the salaries of all Americans by causing our shopping dollars to buy more. And not only Wal-Mart shoppers have benefited; many other retailers have lowered prices to compete with Wal-Mart. But if Wal-Mart had to raise wages, it would then need to increase its prices. And if Wal-Mart charged more, other retailers would gleefully follow Wal-Mart's example and also raise prices. Cash-strapped unskilled workers, sadly, suffer the most if retail prices increase.

If Wal-Mart offered higher wages, it would probably have to cut back on job benefits. Businesses usually face a tradeoff between their working conditions and the wages they must pay. You might, for example, prefer to work at Wal-Mart for $9.00 per hour than another company for $11 per hour if Wal-Mart offered better training and advancement opportunities. But if Wal-Mart were forced to pay higher salaries it would probably try to save money by cutting back on employee training.

Worst of all, forcing Wal-Mart to pay higher wages might French-ify retail America. American shoppers are accustomed to having others bag their groceries. Large supermarkets in France, however, require customers to do their own bagging. France has a much higher unemployment rate than the U.S., so it seems very inefficient for the French economy not to put some of its unemployed to work bagging groceries. About one-half of U.S. retail employees earn less than France's minimum wage. So although it's profitable for U.S. stores to hire bag packers, its high minimum wage makes it unprofitable for France's supermarkets to do the same. The result for France: less pleasant and more time-consuming shopping experiences for customers, and higher unemployment for workers. Do we really want to force Wal-Mart to pay higher wages, thereby causing them to make their customers bag their own groceries?

James D. Miller writes The Game Theorist column for TCS and is the author of Game Theory at Work.


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