The Evils of Wal-Mart

Senator Edward Kennedy, D-MA, is among those crucifying Wal-Mart for failing in it’s corporate citizenship responsibilities. Wal-Mart is the equivalent of the antichrist because it does business more efficiently than it’s competitors? So what, if Wal-Mart forces out older mom-n-pop stores because of it’s ability to undercut them. If these mom-n-pop stores can’t make up the difference in consumer loyalty through service or uniqueness, maybe it was time for mom-n-pop to retire. That is the nature of business.

One of the big issues for Kennedy and the rest are the “low” wages Wal-Mart pays. Are we forgetting that Wal-Mart pays, just as every other company in America, at least the minimum wage? Most of Wal-Marts employees are part-time and perform menial labor. I believe Wal-Mart pays a fair wage for the work performed. Wal-Mart certainly doesn’t seem to be hurting for employees or customers.

Maybe the problem is with the minimum wage…

In early March, the U.S. Senate defeated competing proposals to increase the federal minimum wage. A Democratic proposal to increase the minimum wage to $7.25 per hour over the next three years failed 46-49. A Republican proposal to increase the minimum wage to $6.25 over two years also failed 38-61. These amendments were proposed as additions to legislation sought by the nation’s credit card companies that would make it harder for consumers to erase their debts by declaring bankruptcy.

“When you raise the minimum wage , you price workers out of the market,” said Sen. John Sununu, R-N.H. “It is an economic fact.” While, Sen. Kennedy said he refused to “accept the argument that this is going to mean the loss of jobs.”

According to the Wall Street Journal, Kennedy noted that the last two times the minimum wage was increased, the economy continued to add jobs. Now, I don’t know where Senator Kennedy learned his economics, but the only thing a minimum wage increases is unemployment.

Here’s the trouble with a minimum wage: Basic supply and demand dictates that as the supply of an item increases, the demand for that item decreases, and vice versa. Eventually, supply and demand will reach an equilibrium where supply equals demand. A minimum wage set below the equilibrium wage has no effect, but when set above the equilibrium creates unemployment.

Consider my highly technical and completely arbitrary graph…

Let’s assume the equilibrium wage is $4 per hour and the government sets a minimum wage of $5 per hour. The minimum wage is represented by the horizontal line labeled “minimum wage” and any wage below that line is “illegal.” Notice that at the minimum wage rate, 20 million hours of labor are demanded (point A) and 22 million hours of labor are supplied (point B), so 2 million hours of available labor are unemployed (the space between points A and B).

What this means is that with only 20 million hours demanded, some workers are willing to supply that 20 millionth hour for only $3. Frustrated unemployed workers spend time and other resources searching for hard-to-find jobs. Someone who manages to find a job earns $5 per hour ($2 more than the lowest wage rate at which someone is willing to work). So, it pays unemployed people to spend time and effort looking for work (the inefficiency of wasted labor).

Many assume that an increase in the minimum wage will help low-income families make ends meet, but when we consider the economic effects of this increase, it may actually hurt more than it helps. Although a politician will probably improve his or her approval rating with the passing of a minimum wage hike, it certainly won’t do the labor market any favors.

So, Sen. Kennedy, you want to help the working class? Stop demonizing Wal-Mart and cut taxes!