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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
Progressives love to talk about how the executives at Walmart make 1000 times what a worker at the bottom makes. What they don’t talk about is that the low wage workers, collectively, make about a 1000 times what the executives make, because there’s millions of low wage workers. That sounds fair to me. I’m sure the total value added of the roughly 2 million low wage workers at Walmart is much larger than the value added by a few executives. That’s no insult to the executives, they are just much fewer in number.
I have to assume that, when things are good for Walmart, the low wage workers, collectively, benefit about 1000 times as much as the executives do. And the reverse would be true when things are bad for Walmart (whether that be regulation, taxes, etc.).
Would it be a superior policy for Wal-Mart to pay just enough to have all those families lose their government benefits?
How is it determined? By the principle of marginal costs.
If one more checkout clerk will contribute more than her cost, either in increased revenue or reduced costs, then it pays to hire her. If she doesn’t contribute so much she won’t be hired. Another checkout clerk allows the store to open another register, which keeps the lines shorter and may prevent some customers from shopping elsewhere because long lines annoy them.
I’ve been on a board of directors that had to set the CEO’s pay. We figured out how much to offer him by commissioning consultants to provide us with the average compensation for CEOs of companies in the same industry of similar size and profitability, and adjusting by how much we thought we would have to pay in order to keep him from leaving to join the competition. We also factored in how much the company would suffer from losing him, having studied closely all the internal candidates who might replace him, and by trying to figure out what sort of person we might get from the outside. We valued our CEO very highly, so we sweetened the deal a bit to make it more likely that he would accept it. He did. He gets paid a lot, but he adds a lot more than that to the company. If we didn’t think so, we would offer him less, and if he didn’t accept it, we’d hire the next best person at a lower wage.
CEO pay is a lot like a sports team signing a free agent. If you think he’s worth $10 million a year, and no one else thinks he’s worth more than $5 million, you can get him for around $5 million. If others think he’s worth more, he’s going to cost you more.