Sunday, August 08, 2004

The Economics of Wage Labor

(ALSO BLOGGED ON ECONLIB blog at Liberty Fund: ECONLOG, WHERE I AM GUEST BLOGGING THIS WEEK)

An amazing study was released August 2 by the UCal-Berkeley Labor Center. The conclusion? Wal-mart costs California $86 million a year. The nefarious company does this by cruelly (wait for it) employing 44,000 Californians as workers. Worse, the study points out ominously, Wal-mart actually has plans to hire even more Californians soon. Egads! They must be stopped.

Here’s an excerpt from the report: "When workers do not earn enough to support themselves and their families through their own jobs, they rely on public safety net programs to make ends meet."

Sounds right. One could quibble with the idea of “make ends meet,” of course. It seems to be based on a Marxian idea of subsistence (to “make ends meet,” I need new $150 sneakers, a plasma TV, and a nice car), and has all the problems of a labor theory of value

But let that go. The amazing part of the study is the conclusion drawn by the study’s authors from the sentence I first quoted: Employment policies at Wal-mart, the nation's largest employer, cost California taxpayers approximately $86 million a year in public assistance to company workers. Huh?

The study authors treat the entire amount of public assistance to Wal-mart workers as a cost to the state. But since Wal-mart workers are at the bottom of the economic ladder, why doesn’t it make at least as much sense to add up all the wage payments by Wal-mart to the workers, and count those as a saving to the state?

The question is: what would these workers be doing without their Wal-mart jobs? I would confidently assert a lot of them would be unemployed. Then, the full cost of their subsistence would be borne by the state, whereas now most is offset by Wal-mart wages. The study assumes, bizarrely, that if Wal-Mart would just fire these workers they would be employed in high wage jobs paying full subsistence wages, and the state would pay them nothing. (To be fair to them, the authors say they don’t assume this. To be fair to logic, no other assumption generates the study’s supposed “results”).

Those study authors could be right. Maybe, since knowledge of basic economics is not required, all the Wal-Mart workers could get hired at Berkeley.

UPDATE: See The Liberal Order

6 comments:

Dennis said...

The same reasoning can be found among those who dislikes the international corporations (most notably Nike I guess) and their "sweatshops". For some reason they tend to think that the alternative to the wage that Nike pays to the workers is a better wage (whatever that means) and not unemployment (and sometimes prostitution). One might ask why they choose to work at Nike (or Wal-Mart) if they could get paid better somewhere else.

Anonymous said...

i'm confused by the first comment- it seems to assume that there is a choice between wal-mart and a better paying job. why do upper-middle class college kids always assume that everyone has choices? i don't mean the choice between dook or elon, i mean the choice between feeding yourself by working for a corporation or selling yourself (or sister, daughter, mother) on the street. Faced with those "choices", wal-mart or nike is a good choice to have. (note- this is in no way a defense of either corporation, I only used them as examples of the reality faced by those at the bottom of the socio-economic food chain.)

Anonymous said...

A simpler, nearly tautological, lesson can be drawn from this report: not all jobs are created equal. Which is why statements such as "we've created x number of jobs in the past 12 months" deserve closer scrutiny. The argument, presented here, that a job at Wal-Mart is better than starving or turning tricks is a straw man, which no one is seriously arguing. Isn't it better to say that we wish companies like Wal-Mart had labor relations that didn't cause its workforce to seek state assistance? Isn't it a serious problem when people can be working full-time and still not making a living wage? And speaking of straw men: how many Wal-Mart employees does Munger know that own plasma tvs and $150 sneakers?

Steven said...

"And speaking of straw men: how many Wal-Mart employees does Munger know that own plasma tvs and $150 sneakers?"

Not that Prof. Munger needs me to defend him, but he didn't say that they did, he merely pointed out the problems inherent in the idea of "making ends meet."

"The argument, presented here, that a job at Wal-Mart is better than starving or turning tricks is a straw man, which no one is seriously arguing."

People ARE arguing that Wal-Marts should be banned in places, see the flap over the National Trust for Historic Preservation calling the state of Vermont "endangered" by Wal-Mart. So there IS a need to point out that a job at Wal-Mart is better than no job at all, since a fair-sized group of people would like to eliminate Wal-Mart-style retailing.

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