Sunday, December 01, 2013

A Quick Economics Lesson

(When I say economics please note that there is a difference between economics and what economists teach/believe. I think most economists haven't a clue what happens in the real world, kind of like professional theologians who never get away from campus except to attend theological seminars)

So anyway a couple of weeks ago the predictably left wing Huffington Post ran a hit piece on Wal-Mart because, GASP!, the CEO of Wal-Mart has a much larger pension plan as part of his executive compensation package than the average cashier/greeter/shelf stocker that works for Wal-Mart. Oh the humanity! Something must be done! I say...


I know Wal-Mart is the easy to revile target du jour. It is the unattainable prize for unions and their bought and paid for political friends. Being the single largest private employer in the country means that unionizing Wal-Mart would singlehandedly help reverse the decades long decline in union membership so the labor movement has been fanatically obsessed over Wal-Mart for a very long time. Railing against Wal-Mart is made even better because there is a subtle elitism from those who are refined and shop at fancier stores, sneering and snickering at the great unwashed hoi polloi that shop at Wal-Mart because a few of them wear lycra pants and tube tops while shopping. Chortle! What a bunch of rubes! If we can control our sneering for a moment, can we think about this?

The CEO of Wal-Mart heads a multi-national goliath with around 9000 locations, the #1 largest company in the Fortune 500 with almost $500,000,000,000 in revenue. In case you missed it, that is half a trillion dollars in revenue. It is one of the, if not the, most complex business entities in the world. What exactly would you say is an appropriate pension ratio compared to the average Wal-Mart worker, a worker that has no supervisory or P&L responsibility even at the department level in a single store and presumably has minimal experience and education? Working in the retirement plan industry for as long as I have I can guarantee you that the reason the average 401(k) balance at Wal-Mart is around $18,000 is that there are an awful lot of people who don't save anything in their retirement plans and coming up with an average when a lot of your input is a zero lowers the entire average. That is true at almost any company and especially organizations with a large number of lower income, part-time and second-wage workers like retailers. Companies spend a lot of time and effort to try to get people to participate, often selecting their retirement plan provider based in large part on their experience in education employees. Not everyone can afford to save in their 401(k), I get that, but the out of context ratio is a red herring.

Really what does it matter to you or me how much the CEO of Wal-Mart gets in his pension compared to the "average" Wal-Mart worker?  In fact what does it matter to the average worker at Wal-Mart? It really is an issue between the board of directors, selected by the shareholders of Wal-Mart, and the person who occupies the proverbial corner office. They have decided that he is worth that sort of compensation package. I know that being perpetually aggrieved over this "injustice" or that "outrage" is something of a badge of honor among a subset of the population, the same population that likes to mock the stereotypical low brow customer of Wal-Mart stores, but as a private employer Wal-Mart is free to offer various compensation packages to people for various jobs. If the average Wal-Mart worker thinks he or she deserves a higher wage or better compensation package, they should apply for other jobs and see if that is true. You only deserve whatever wage you can negotiate based on your skills and experience. If you like working at Wal-Mart and want to make more, Wal-Mart has all sorts of benefits to help you. As their website notes, "About 75% of our store management teams began as hourly associates, and they earn between $50,000 and $170,000 a year" and " Every year, we promote 170,000 people to jobs with more responsibility and higher pay". THAT is how Wal-Mart workers make more money, by working hard and taking advantage of opportunities to advance yourself, opportunities open to every employee, not by demanding an arbitrary raise for no reason other than someone thinks they should make more.

A lot of this chatter surrounds the idea of a "living wage", an arbitrary level of income that someone decided everyone needs to make. We are treated with the regular spectacle of the Left pushing for an ever inflated minimum wage, a policy that basically amounts to bribing voters with other people's money. The latest proposal demands a Federal minimum wage of $10.10. Why stop there? Why not $20/hour? Or $30?! Probably because the people who are pushing for this know that it would cause dramatic, immediate inflation. By increasing it incrementally, a buck or two here and there, the inflationary pressure is spread out. It is still there but it is not as obvious. The net results is that within a short time the minimum wage worker is still not better off in terms of purchasing power but they are made to feel better about themselves and of course show up at the ballot box to vote for the party that "cares about working class Americans:.

Let me be blunt. No one "deserves" a living wage, whatever that means. You don't "deserve" something just because you "want" something, although that is a tough sell in our society. Saying that an entire population of workers in a myriad of industries, with radically different skills and experience, living in a wide range of cities, towns and rural locations deserves an arbitrarily determined rate of pay might make for good political theater but it doesn't make a lot of sense in the real world. Many jobs are called "entry level" because that is what they are, jobs for lower skilled employees with correspondingly less experience. Employers are dying for workers with skills, skills that just about any American can get for relatively low cost and in a short time at a community college. Every place I have ever worked promoted from within so if you work hard, you move up. That is how it has always been, at least in my lifetime/, but now people want to skip the "work hard" and "gain skills/experience" part and go right to the "make more money" stage.

Kudos to Wal-Mart for attracting top executive talent and compensating them for the unimaginably difficult and complex jobs they perform. Again, if the average Wal-Mart worker is thinks they are getting a raw deal they should take their resume to the marketplace and see what employers think. Or they should take steps to advance themselves. There is no reason an 18 year old Wal-Mart worker making minimum wage can't go to college on Wal-Mart's dime and rise through the ranks to be the CEO. It takes time, it takes patience and it takes hard work but aren't those all things we are supposed to respect in America?


Naum said...

Says someone ensconced in privilege, due in large part to people (not just in U.S., but all over the globe) paid less than a "living wage"…

Melanie Reed said...

sarHere is a short economics lesson from someone who took the classes and was appalled that it was assumed I would think it was 'wisdom'. A business earns a pool of money. If they are large, they hire workers to help them do this. The Bible has a lot of things to say about economics but I have heard or seen few Christian men draw on its wisdom except a few offer sound observation on the subject. It has tons of advise and admonitions on economics. For one thing, the Bible says: "the worker deserves his wages." (1 Tim 5:18) Not "The talented worker deserves his wages" or "The CEO who things he deserves more because of his skewed perception of what he does which then impoverishes many deserves his wages." First off, it should be clear that not "all men are created equal" when it comes to the "talents" we appreciate or want to exploit in our economic system. God purposely has it that way to see what we will allow ourselves to do to each other. Do we value a man for his character and virtues displayed in solid work? Or are we interested in only those who abilities dazzle like the mobile over the crib? It seems more and more the latter and indeed, most of what gets produced is collectively called "toys and gadgets" these days. I could write more, but I am not as talented nor precise as this man who captured what the problem is in his book: The Outline of Sanity - Plus I have to go to work. And after 13 years of schooling and many awards for that schooling along with a strong work ethic, I am earning less than my trash collector. I am not alone. Normally, I am greatly encouraged by what you write, but I think a larger view is called for here.

Arthur Sido said...

Naum, what would the people being paid less than a "living wage" around the world be doing if those apparently unsatisfactory jobs were not there? Subsistence farming? Some other glamorous, high paying job that would be available to them if only they were not making t-shirts for Americans? It is easy to decry the wages paid to low skill workers in other countries, as well as the U.S., but what is the alternative?

Arthur Sido said...

Melanie, the Bible does indeed have a lot to say about money in general and economics in particular but not really much on how secular businesses run. A worker certainly deserves his wages and the workers at Wal-Mart are paid every nickle they are owed. I would also push back on the idea that a CEO being paid a lot necessarily impoverishes the average worker. Companies don't have a static pool of money to pay people from. If Wal-Mart cut the CEO comp package by 90%, the funds not spent on the CEO would not be divvied up among the average worker.

Christians should not chase after wealth and privilege but we also shouldn't be in the business of criticizing secular businesses for what they pay their workers.