Wednesday, November 01, 2006

Are There Too Many Wal-Mart Jobs, or Too Few?

Policy proposals often address a problem that is visible. In many cases, there is a related problem that is not visible. Policy, like life, is fraught with tradeoffs. A proposal that helps the visible problem will in many instances make the hidden problem worse.

When Wal-Mart comes to town, it puts pressure on existing firms. Because of the new competition that they face, these firms may cut wages, particularly if unions had negotiated a wage higher than the market-clearing wage. To address this problem, politicians have proposed various measures designed to push up the wages and benefits that Wal-Mart has to offer its workers.

A recent op-ed in the New York Times nicely captures the corresponding hidden problem. After Mayor Daley overruled city council members who wanted to keep Wal-Mart out of Chicago because it did not offer a "living wage," 15,000 people applied for 400 jobs at a new Wal-Mart that opened on the city's west side. Their response shows the hidden problem: Many poor people can't find jobs that offer the wages and benefits that Wal-Mart pays. If the demand for labor slopes down, measures designed to force Wal-Mart and firms like it to pay higher wages will make this hidden problem worse. There will be even fewer of these jobs.

Discussion Questions

1. Consider two groups of workers mentioned above: (1) employees at Wal-Mart's competitors, and (2) workers who would not otherwise have a job, but who might get a job at Wal-Mart. What effect would policies that increase Wal-Mart's wages and benefits have on each of these groups of workers?

2. The line for jobs at Wal-Mart indicates that there are many people in Chicago who are either not working, or working at jobs that offer a less attractive package of wages and benefits. What policies, besides more Wal-Marts, could help to alleviate these problems?

3. According to the article, how might a lower-cost retail outlet help low-wage workers who don't work at Wal-Mart?

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  • At 6:58 PM, November 14, 2006, Blogger Rusty said…

    Wal-Mart can pay low wages because the demand for labor is not that great, despite what you might be hearing from the Bush administration.

    But then former manufacturing workers need somewhere to go, right?


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