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No, Government Isn’t Subsidizing Walmart
Democrats
, unions, and left-wing activists frequently argue that government (actually taxpayers) subsidizes Wal-Mart and other companies that employ low-wage workers because many of those workers receive government welfare benefits such as food stamps and Medicaid. And the mainstream media pretty much accept this reasoning. Here is CBS News: “Walmart’s highly publicized pay hike is a victory of sorts for its 1.3 million employees, but American taxpayers will foot the bill for the large subsidies that will still be needed to compensate for the discount retailer’s low wages.”
So, goes the theory, if Wal-Mart would pay its workers a “decent wage” — like a minimum of $10 an hour or $15 an hour (or more) — the retailer could get off the dole! The Netflix series House of Cards recently had a fictional presidential candidate bash Wal-Mart with this reasoning: “The starting salary for an employee at Walmart is below the poverty line. Now, the American government subsidizes Walmart to the tune of $7.8 billion a year by issuing food stamps to over one in ten of its workers.”
Well, that’s one way to look at it. Here is AEI’s Michael Strain, a fan of the Earned Income Tax Credit, yesterday at the Peterson Institute for International Economics addressing the “government subsidizes Wal-Mart” issue after it was raised by an audience member:
… we have to recognize that different agents in society have different responsibilities. Imagine you have workers, firms, and the government. … It it is simply unrealistic to expect that a firm that is ostensibly trying to maximize profits, although perhaps imperfectly, will take someone who can bring in five or seven dollars an hour in revenue and pay them two to three times that amount of money. It will be losing five or ten dollars an hour on every hour that person is working. That is just unrealistic to expect a firm to do in a market economy.
So then the question becomes, who is responsible for making sure that the employees of these organizations have adequate food, adequate shelter, adequate health care and who can meet a baseline level of material standing, especially given that we live in a society where we have a lot of billionaires. And to me, that answer is government through all of society. I don’t want those workers to be poor, and I don’t want those workers to not have enough food, and I don’t want those workers to have to deal with the cognitive load [from being poor].
But I want more than McDonald’s and more than Walmart to be responsible for making sure that those outcomes happen. I want the Koch brothers to be responsible. I want the Walton family to be responsible. I want me to be responsible, even though I don’t employ low wage workers. And so the way to do that is to tax people who have a lot of money and to redistribute it to people who are working hard and playing by the rules and who aren’t earning what we deem socially as an adequate standard of living. So you seem to want Walmart and McDonalds to bear the entire brunt of that, and that’s implicit in the argument that somehow the government is subsidizing Walmart and McDonald’s, and I just fundamentally disagree with that framing.
Economist Justin Wolfers also had a response as to how the issue is framed: “You could say all these guys who work at Wal-Mart are on food stamps, and if they weren’t being paid a low wage, they wouldn’t be on food stamps. So therefore implicitly we are subsidizing the hell out of Walmart. [But as Walmart might see it], if they weren’t working at Wal-Mart at a low wage, they wouldn’t be working at all. The food stamp [cost] would be even bigger.”
Finally, economist Jacob Funk Kirkegaard points out that according to the “government subsidizes Walmart” logic, nationalized healthcare — which many on the left might like — would be one massive subsidy to business: “I mean, if you take other countries where you have essentially a single payer public funded system, you could then say, ‘Well on the one hand, that implies that the subsidy provided by the public sector to the entire corporate world is 100%,’ right? Because no firm needs to take any direct cost for health care. It’s just basically taken care of, if you like.”
Published in Economics
If every business raised wages, prices would go up too, and we would have a whole new group of people who can’t afford a desired standard of living.
Let the market find the balance.
I’ve actually wondered on and off for the past couple years what would happen if we took the “Government is Subsidizing Wal-Mart!” logic to it’s extreme, and announced the following two-part jobs reform:
1. We’re repealing all minimum wage laws
2. We’re replacing all existing welfare programs with a basic income stipend program of $X per person per year. Only individuals who can provide documentation that they have a job of at least N hours per week – regardless of whether they’re paid $0/hr. or $1,000,000/hr. – will be eligible for this stipend.
Seems to me that this program would be a massive subsidy to both low-skill workers and employers. It would essentially say that the government would cover the first $X of wages for their employees, freeing up the capital to be used for investment, expansion, innovation, etc. It would also help disincentivize the replacement of human workers with automation, thus slowing down the decline of unskilled labor.
Of course, I’m not an economist so I have no idea how this would actually work, or if it has been explored in any depth.
When I first read this idea on Facebook, it just kind of knocked me back. It starts from such a bizarre perspective that I took me some time to figure how to address it. Finally I just said, “Yes, Walmart is bad. But do you know who is worse? Me. Walmart pays a low wage to millions of workers, but I pay no wages to any workers.”
Yes. And this is probably more so for Walmart than it is for other businesses. Low income people are able to buy a larger basket of a large variety of high quality goods at Walmart than if Walmart and other outfits like Walmart did not exist.
1) Which is worse:
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2) When can I expect to see the activist Left oppose all corporate/individual subsidies, not just the ones that go to companies they especially dislike?
Something I’d like to do is compare the budgets of Walmart and the budgets of the federal government, and see which one pays more money to low income people. The top three items the federal government pays for are Social Security, Medicare, and defense. Social Security and Medicare, as I understand it, tend to transfer money from poor to rich, because the poor tend to work longer and live shorter. Correct me if I’m wrong, but not that much federal spending directly benefits poor people.
In contrast, Walmart employs about 2.2 million workers. If the average wage is $20,000/year, that’s $44 billion per year. That’s a lot of money. I don’t know enough about business to know what budget that $44 billion in payroll is allocated from, but I’m pretty sure it’s greater than Walmart’s profit margin.
If I had a dollar to spend to help the working poor, and I had to choose to give it to Walmart or to the federal government, I think I’d give it to Walmart. My guess is more pennies from that dollar would go to the poor than if I gave it to the government.
Yes. My observation is that poor people love Walmart. Progressives hate Walmart. Walmart allows poor people to buy things they want at prices they can afford using their own money, so it’s no mystery why.
It’s not all sunshine and daisies, though. In keeping with the global trend of “the rich get richer, the poor get richer, and the middle class gets screwed,” economies of scale like WalMart allow those on the bottom rung of the socioeconomic ladder access to a lot of cheap goods they didn’t have before, while allowing increased profits to flow to the entrepreneurs and finance guys who run the show. Unfortunately, all that stuff about “undercutting the mom and pop store” is true too. I’m not taking sides on whether or not WalMart is a good thing on net, but we probably should recognize that huge goliaths like WalMart do have a deleterious effect on smaller businesses in the same niche that can’t leverage scale the same way they can.
There’s also a hypothesis that big-box stores appeal to “poor people” for another reason other than low prices.
So the hypothesis goes, big-box stores like Wal-Mart allow “poor people” a measure of anonymity when shopping, that they couldn’t get with the old-style “mom-and-pop” stores on the town’s main street.
So, when the “poor” family went into town to do its shopping, all the “respectable” people and shopkeepers knew about it, and gossiped about it. This had the effect of incentivizing the “poor” people to keep to themselves and avoid coming into town as much as possible.
With the advent of the big-box stores, this taboo against “poor folk” coming in to town was pretty much demolished. The “respectable” townfolk had to choose to either tolerate the riff-raff in “their” town, or to move somewhere more “respectable”.
Of course, it’s not like they still aren’t gossiped about. It’s just that the gossip has moved online.
Disclaimer: I do not recall where I first read this hypothesis, and I do not have any citations, so take it for what it’s worth.
What Walmart pays: Minimum wage on a 40-hour week.
USMC PFC on 24-hr/day active duty: $2.22/HR.
Because the benevolent government does everything better.
I’ve never been sold on the idea that “mom and pop stores” are a good in and of themselves. There are plenty of cases where such stores operated as virtual monopolies in smaller markets.
Think of all the stories from film and literature where one family basically owns the entire town.
Something like Mr. Potter’s little empire from It’s A Wonderful Life, could easily be considered a “mom and pop” operation when compared to a corporation like Wal-Mart.
Another example would be Mr. Endicott from In The Heat of the Night, the local bigwig who opposes a factory being built by “outsiders”. In the anti-big-box narrative, Endicott would be the “mom and pop” operation being squeezed out by “corporate greed”.
The words “big business” and “small business” are entirely relative.
That’s true, but if we want an entrepreneurial “middle class,” that’s what it’s gonna look like. Otherwise we may well wind up replacing the “middle class” with a bureaucratic service-class that’s made up entirely of white collar professionals who make their living barnacling on to the affairs of the truly wealthy.
This is typical of mush-minded Leftist thinking. They can’t even understand that welfare and Medicaid subsidize the poor who receive the benefits, not someone else like Walmart.
I do not believe that the Government is subsidizing Walmart but I do believe they are blackmailing Walmart either directly or indirectly. It sure wouldn’t be hard for a politico from the WH to say to Walmart: “Look $80Billion or so of your annual sales come from our EBT cards. That makes the US Government your largest customer therefore we are going public with a request to garner a 2% rebate on all EBT purchases unless you get in line with our policies to get wage growth one way or the other”. 90% of Americans would agree that is fair as they are part of and understand the multitude of “loyalty programs”.
But, Walmart’s net profit margin is not far from that 2% amount, so the damage to the stockholders would be extreme. Better to cave if you are management, but you will find a way to claw those expenses back, probably at the expense of the workers as they are Walmart’s largest operating expense.
Business and Government are too close.
An entrepreneurial middle class can also look like Uber, or AirBnB, or eBay, or Etsy, or YouTube, or uShip, or Mechanical Turk, or Amazon, etc, etc, etc, etc…
a) The traditional image of the “main street storefront” is not necessarily a requirement.
b) When big-boxes handle the products and services needed by low-end consumers, the storefront real estate freed up on main street can be reallocated to higher-end goods.
There are plenty of small towns around my neck of the woods where the basic shopping needs are met by the big stores on the highway while the quaint, main street storefronts are fully occupied by higher-price boutiques.
In fact, when I think of the nearby towns where the main street business areas are more run-down and low-end, with lots of vacant spaces, those are often precisely the same towns that don’t have big box stores on the highway, because the local economy isn’t strong enough to support them.
Strong economies create big box stores. Big box stores don’t create weak economies.
There are so many problems with this argument.
First, it’s made as if Wal-Mart was actually receiving a direct payment from the government, which is, of course, untrue. If you’re going to call it a subsidy, you have to explain that it’s not really that at all, but rather a cute turn of phrase to be used as a cudgel against right-wing ideological opponents. That’s rarely done, of course, by those making this argument, and hence the Left commits another act of violence against the English language.
Second, the argument doesn’t take into account that Wal-Mart and McDonalds pay ungodly sums of taxes to every level of government in this country, more than enough to “cover” the cost of food stamps paid to whatever portion of their workforce receives welfare.
Third, the argument seems to ignore that the likely effect of a “living wage” would be to shrink the size of the workforce, pushing out the lowest skilled and lowest wage earners. So, instead of only partly relying upon food stamps, they’d be relying on them wholly. Stated another way, Wal-Mart–more than anyone else in the U.S.–is lessening the amount of welfare paid by employing so many low skilled workers.
Fourth, the complaint is odd coming from liberals. They’re saying is that Wal-Mart is responsible for the complete well being of its employees. Oh really? We had that model in this country before the 1930s, before the rise of the vast, federal administrative state. Employers and local charitable institutions were, by and large, responsible for ensuring people’s general welfare. I recall learning in college–from a Marxist history professor–that this system was awful and left people to twist in the wind. Over the last century, progressives and Democrats have systematically dismantled that old model, and replaced it with their own ideological program built on the notion that government, not private groups of any kind, is primarily responsible for people’s welfare. The honest argument would be just to call for a general tax hike.
That’s an interesting “chicken vs. egg” question you raise. Do big boxes lead to welfare or does welfare lead to big boxes?
Does the rise of Wal-Mart coincide with the introduction of the War on Poverty?
This is more evidence, as if any were needed, that progressives are economic morons.
Here is my solution to this non-problem. If the food stamps are subsidizing (wrongfully) Walmart through its employees, then let’s have a rule that anyone working for the Walmart wage is ineligible for food stamps. Then, according to progressive theory, Walmart would have to pay its employees more of a living wage and the government could end its indirect subsidy.
This rule logically should apply to all employers who pay what Walmart does, since it stands to reason that their employees are all receiving food stamps.
As for Walmart receiving a second subsidy when food stamp recipients shop there, let’s prohibit those recipients from using the stamps there. That will certainly do the poor people a huge favor. They will have to spend their cash at Walmart if they want to shop there, and they can use their food stamps elsewhere.
I believe in a true free market, the problem of Walmart outcompeting smaller stores would be resolved naturally. Walmart stores are not everyone’s favorite place to shop. It’s not my favorite place to shop. I suspect the best way to avoid Walmart squashing its competition is to increase wealth overall, since I think most people will shop at stores other than Walmart when they have the means to do so.
I believe i have read that areas with a walmart have a healthier small business community.
I rarely shop at Walmart because I find the experience a bit disagreeable. But there are times when Walmart is a godsend.
I bought a rental property and had to equip the kitchen and laundry and needed other things for around the house. Being able to get virtually everything I needed from Walmart saved me a lot of money and especially a lot of time.
Where I live there are, quite near the Walmart, any number of other retailers who compete with Walmart: Target, Kohls, various supermarkets, and hundreds of specialty stores of all sorts. It’s hard to see that the shopping public are harmed in any way by Walmart’s presence in our community.
And if small merchants are going to disappear, then such people will have to find another line of work, much as bookkeepers, telephone operators, farm workers, and workers in hundreds of other occupations have had to do over the last century.
A buddy of mine who works in commercial real estate once told me that when he was trying to rent out mall space lots of retailers wouldn’t sign up unless there was a Wal-Mart in the complex.
As a business owner who provides a plethora of minimum wage jobs in CA ($15/hr) I am incensed at the idea that low-skill jobs are expected to support a family.
A couple making $15 bucks an hour/40 hrs hour a week isn’t taxed federally so their take home pay can easily support a middle class lifestyle for two.
Live with that or work to get a promotion and benefits and always re-think if you are in the financial position to afford to have a family. Having children is no God-given right; it is a privilege and most of all a responsibility.
The problem with all of this is that relative to the world and our own past, America has almost no poverty. A single person making minimum wage today (even without government welfare benefits) has a higher standard of living than the majority of the people living in Africa today and Americans living in 1900.
The worst driver of poverty in the US for the past 30 years are single mothers. If we had the out-of-wedlock birth rates today as we had in the 1960’s, poverty would be less than half of what it is now.
” … we have to recognize that different agents in society have different responsibilities. Imagine you have workers, firms, and the government. … It it is simply unrealistic to expect that a firm that is ostensibly trying to maximize profits, although perhaps imperfectly, will take someone who can bring in five or seven dollars an hour in revenue and pay them two to three times that amount of money. It will be losing five or ten dollars an hour on every hour that person is working. That is just unrealistic to expect a firm to do in a market economy.”
He who defines the premises defines the conclusion. How is it determined that the checkout clerk manning the register at my local Walmart at 2:00 AM is “bringing in” only 5 to 7 bucks to the establishment while the pearls of wisdom falling from the lips of the CEO are worth anywhere from 20 to 40 million a year? The checkout clerk is providing security for millions in merchandise, is maintaining customer service standards that would be astonishing in most parts of the world, and is doing her level best to exist in the mainstream of American society by doing her job as efficiently as her tools and support allow. Henry Ford knew that treating people as more than pieces of meat was in the long term best interest of American capitalism. A higher minimum wage is a conservative policy.
Obviously, you don’t own a business or have ever taken on all the fiscal responsibilities of doing so or you wouldn’t have made that ignorant comment.
Unlike you, I own successful private businesses (see: plural) and have never contemplated paying minimum wage because you get what you pay for.
Stop reading Slate.
Perhaps it’s apocryphal [I didn’t read it in Slate, either] but I’ve been told that Walmart, possibly some other large employer, has a computer program that calculates the employee’s income filing status, number of dependents, etc. and assigns part-time hours on the basis of what will optimize the food stamp allotment for the family.
I have all the respect in the world for entrepreneurs, but do not consider those that get out of a top school with an MBA and then surf the bureaucracy at a place like Walmart Corp to have really demonstrated those traits. I would compare it to professional boxers vs. professional wrestlers. The wrestlers might be good athletes, but they flatter themselves if they think they got to the top on rugged individualism and fair competition.
You need to learn a bit more about Henry Ford as it seems like you have fallen hook, line and sinker for the “myth” about his wage policy. He increased wages significantly to stem a horrendous turnover problem, not to be “nice” or pay his workers enough so that they could afford to buy the very product they were making.
A higher mandated minimum wage (or any mandated minimum wage at all) is not a conservative policy. Full stop. Outlawing consenting parties from engaging in commerce (the exchange of labor for remuneration) below a certain price is not conservative. It also hurts many of the very people it is purported to help.
This is the single biggest issue employers face. Good point.
I should clarify that I don’t necessarily support the progressive notion that Walmart crushes small business. I am ignorant of the data on that issue, and accepted the premise for the sake of the argument.