One of the great puzzles of our times is the fury and venom unleashed when we discuss the wages that Walmart pays to its employees. That those wages aren’t very high is true: but then working in retail isn’t a job that adds a great deal of value. And it’s value added in any particular job that determines what that job is going to pay. A job where the pay is higher than the value added is simply a job that isn’t going to exist. And we can also take a rather more Marxist view of this and point out that according to the standard interpretation of Karl Marx’s work Walmart treats its employees vastly better than Apple AAPL -0.93% does. The reason being those numbers in that headline.
It’s entirely true that we don’t normally look to Karl Marx these days for handy hints on how to run an economy or country. Something that might not be quite so true of the ivory towers of academe, to be sure. But that Marxist point is that the less of the value add that is being expropriated by the capitalists then the better the workers are being treated: less of their labour is being stolen from them. Thus the employer that earns a lower profit margin per employee is a better employer: making big box retail one of the best employers in the country therefore. Yes, of course, it’s an odd way of looking at things but then if you’re going to follow economic idiocy like Marxism then you’re going to end up in some very strange places.
All of this comes from a lovely piece in the WSJ by Andy Pudzer. He’s the CEO of CKE Restaurants (Carl Jr’s, Hardee’s etc) and so is obviously talking his own book. But then we regularly pay attention to newspaper pieces from politicians telling us all how they must have more money of ours to lavish upon their desires, to union leaders telling us that it’s very important that union members get more, even to famous economists insisting that we should all vote for their favoured party. Some of these arguments are even valid (although not those from politicians, obviously) but it is the content of the argument that we must consider, not the source (except with politicians, of course).
His point is really rather simple. Big box retail doesn’t in fact make much profit from each employee it employs:
The situation is far different for America’s retail businesses, where a minimum-wage increase would be most deleterious. Combine every retailer, restaurant, supermarket and retail pharmacy company in the Fortune 500 as a proxy for the retail industry. That is more than 20 companies, including Wal-Mart, Target TGT -1.39%, McDonald’s, Starbucks SBUX -1.69% and Walgreens.
The total adds up to $36.4 billion in annual profit (about $3 billion less profit than Apple alone), 5.8 million employees (about 60 times as many as Apple employs) and annual profit per employee of $6,300 (1.5% of Apple’s profit per employee).
That amount, that $6,300, is the maximum theoretical possible that retail wages can rise by, without either causing price rises or unemployment. That’s if the owners of those businesses decide to run them as charities, never make a profit. Simply because, with the wages currently being paid, that’s all there is over and above that amount currently being paid out in wages. There just is no more money. And that causes a problem when we come to consider some of the wage proposals out there:
At $12 an hour, the employee would make $7,410 more a year resulting in a loss per employee of $1,110, eliminating the employee’s entire contribution to the company’s success. At $15 an hour, the employee would make $14,290 more a year, resulting in a loss per employee of $7,990.

OK, hands up everyone who thinks that a sensible, heck, even an awake, capitalist or businessman would run a business in order to lose $8,000 a year on everyone they employ? Quite, it’s not going to happen, is it?
So, imagine the Fight for $15 wins and everyone gets that $15 minimum plus a union. What is then going to happen? Yes, it might be that those retailers reduce their profit margins a bit but remember what Adam Smith told us about business sectors that make below average profits: less capital gets invested in the sector, the sector shrinks and jobs are lost. Or, of course, they could radically change their labour policy. People like Walmart could move from their current extensive use of low pay and low skill labour to a more intensive use of higher skill and higher paid labour, like, say, Costco. That would mean firing about half their employees: Costco does use about half the labour per unit of sales as Walmart.
Or thirdly they could raise their prices. At which point two things: the major consumers of low wage labour are in fact other low wage earners. Walmart’s target market is not, as we know, those Apple engineers. Nor, really, is Apple’s target market those minimum wage earners. It is generally highly paid people who purchase things made by other highly paid people: lowly paid by those lowly paid. So, price rises in that sector aimed at the lowly paid are going to harm…..yes, the lowly paid. So that’s not a great solution either. And then of course there’s substitution. I’m pretty sure I’ve been told you can buy your groceries at Amazon these days. And that’s a much lower labour content structure of retailing than having stores all around the country. So, if wages rise in walk in stores because of the minimum wage rise then we would expect to see a price difference opening up between those physical stores and online ones. Meaning, given that online uses less labour overall, as people switch to the online suppliers fewer jobs in the sector.
Whichever way around we play this a minimum wage rise is simply going to lead to job losses.
Yes, yes, I am aware of the macroeconomic argument. Poorer people spend all of their wages so if they get more then that’s a boost to aggregate demand. And the effect is indeed there: but it’s not large enough. Michael Reich, one of the boosters of the higher minimum wage, proved it in his report to LA City Council. He assumed that all of the extra pay would be extra demand (it wouldn’t be, perhaps the addition to demand would be 15% of the extra pay) and even then the $15 wage would lead to job losses in LA City. That aggregate demand argument is one of those things that is common in economics: it’s true, but not true enough to be important.
So, given that we don’t want to make people unemployed we should not, as a matter of public policy, raise the minimum wage to $15 an hour, should we?
Which brings us back to Marx. We know why Apple pays very high wages to its engineers: it wants the very best it can find because it can make very large indeed profits out of hiring each and every one of them. It’s entirely usual that businesses, or even business sectors, that have high profit margins pay good wages, those that have low pay less. This is of course one of the reasons why inequality has been rising in recent decades: some sectors of the economy have been roaring ahead, others not so much. Yes, there’s that 0.1% roaring away from the rest of us but at least part (according to some, a lot) of the story is that productivity is rising swiftly in certain sectors and companies and not in most. Pay reflecting that more local, rather than in general and average across the economy, productivity.
But Marx: to him, and his followers, profit is the sweat ripped untimely from the brow of the oppressed worker. The more of the value added that the capitalist is appropriating then the more that the worker is being expropriated. Which means that, given that Apple has the highest margins per worker in the US economy, Apple is the most oppressive employer in the country in that Marxist sense. Which is, obviously, mad, but then that’s what Marxist economics leads you to, such insanity.
All of which leads to an observation. Our underlying point here is obvious, the retail sector simply doesn’t have enough money to pay that $15 an hour. Therefore let’s not do it because we don’t want to make people unemployed. But our associated observation is that the American left is at least Marxian, informed by Marx’s analysis, even if not full on Marxist. And yet they complain and whine bitterly about retail, Walmart and the rest, and delight in the coolness of the products from Apple. Yet Walmart extracts less of that surplus value from its labour force than Apple does: meaning that in that Marxist sense, Walmart is a better employer than Apple. This despite the fact that Apple has actually been convicted of trying a cartel to restrict the wages of its workers, not something that Walmart has even been accused of.
Odd really, isn’t it? I dunno, maybe it’s just that it’s more fashionable to complain about those stores that no self respecting progressive would ever allow to sully their town rather than follow through on the logic of their own beliefs.