Tuesday, August 29, 2006

WalMart economics for toddlers

One of the best articles I've seen about the employment practices at WalMart. This one is at TechCentralStation.com, written by Tim Worstall, and it compares WalMart's operations with Costco's, the store most often mentioned by WalMart opponents as a more desirable corporate citizen.

One of the basic gripes the anti-WalMart crowd has is that WalMart's wages are far below those given to Costco employees. What the antis fail to mention is that
Costco does pay more; it also uses about one quarter of the number of employees.

Costco has sales of $51 billion, 110,000 employees (45% part time, similar to WalMart isn't it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee. That sounds about right to me, it's been a number of years since I lived in the US but Costco is the place where you drag that 50lb bag of rice to the door yourself, right? WalMart is the one where cheery souls are employed solely to bid you good day as you enter. So, in theory, we could in fact get WalMart to pay the same as Costco by making similarly efficient use of labor: that is, firing between two thirds and three quarters of their staff.

We could even look at the profit made per employee: $9,000 at Costco, $7,700 at WalMart. If we were of a Marxist cast of mind, seeing profit as purely and solely the surplus value extracted from the labor of the worker, we would thus say that Costco is even more exploitative than WalMart, would we not?

We all know that WalMart is an extensive user of labor and that Costco is an intensive one. We really shouldn't be surprised that the pay rates are different in the two models. Indeed, our very basic model, that when a price rises, people use less of something, would predict it. Those who are paying a higher price for labor are indeed using less of it. This simply shouldn't be surprising to anyone.

To wish that WalMart move from its current low wage and lots-of-labor model, to Costco's (relatively) high wage and low labor utilization is fine, but an adult view would include the acknowledgement that for WalMart to adopt the second model would require that they fire between 860,000 and 975,000 of their current workforce. The child's view would be that everyone should just be paid more because I want it to be so! -- i.e. that there are no side-effects to such decisions.

Well worth your time!

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