Wednesday, August 03, 2005

Missing the Point on Wal-Mart

In today's New York Times op-ed page, Pankaj Ghemawat and Ken A. Mark make the case that while Wal-Mart has "some issues to tackle" regarding it's treatment of workers, the benefits that the retail behemoth provides in productivity and lower prices to consumers far outweigh any costs that they impose by "securing subsidies, destroying jobs in competing stores, driving employees toward public welfare systems and creating urban sprawl."

Is this true? Citizen Cain doesn't know. But Ghemawat and Mark also claim that increased wages for Wal-Mart workers would necessarily lead to higher prices. In making this claim, they fail to address the arguments of Wal-Mart's critics. Ghemawat and Mark say that a $2 per-hour pay increase would wipe out Wal-Mart's profits:
Such a possibility would be unacceptable to Wal-Mart's shareholders, who include not only Sam Walton's heirs but also the millions of Americans who invest in mutual funds and pension plans. Instead, the more than 100 million Americans who shop at Wal-Mart would most likely just end up paying higher prices.

But Wal-Mart's critics argue that poor treatment of Wal-Mart workers, including low wages and lousy benefits, leads to high employee turn-over. As a result, what Wal-Mart saves through wage stinginess is largely offset by high costs for hiring and training new employees. Costco pays higher wages and gives more generous health benefits, and as a result gets a more productive work force and much lower turnover.

These arguments are well known. The Times doesn't advance the state of knowledge on this issue when it publishes op-eds that pretend that these arguments don't exist.