Congressional Report Singles Out Walmart as a Drag on US Economy

Walmart’s low wages cost taxpayers a lot of money and contribute to national debt, this according to a new congressional report. One Walmart supercenter can cost taxpayers as much as $251,000 in food stamps alone.

When all other potential costs are added in, the bill can come to about $900,000 per Supercenter. A typical supercenter employs about 300 people, so this calculates to about $3,000 per person in costs that may have to be borne by US taxpayers.

The report is entitled:

The Low-Wage Drag on Our Economy: Wal-Mart’s low wages and their effect on taxpayers and economic growth.

 

Walmart: Externalizing Costs to US Taxpayers

In the Walmart approach many costs are, in macroeconomic terms, externalized. Externalizing costs is an approach that has been employed, for example, by mining companies. Think of a mining company that develops a site, extracts their ore, then declares bankruptcy, and leaves the site cleanup to taxpayers who then foot billion dollar bills. In this case, part (often a large part) of the costs are not built into the company’s business model. Not having to account these costs allows the products to be sold at lower prices, often further increasing demand that in turn results in higher externalized costs.

While economists call this externalized cost, you and I may refer to it as a nasty business model.

To place this situation in more perspective, the US national minimum wage is $7.25 (and 31 states do not mandate a higher minimum wage). This comes to about $15,000 per year (assuming the worker is permitted to work fulltime, but this is often not the case).

 

US Department of Health and Human Services Poverty Guidelines

As one can see from the poverty guidelines below, a family of four with a single minimum-wage breadwinner would be well below the poverty line (again, assuming full time minimum wage work is permitted by the employer).

 

US Census Poverty Thresholds

 

Report Executive Summary

Rising income inequality and wage stagnation threaten the future of America’s middle class. While corporate profits break records, the share of national income going to workers’ wages has reached record lows.

Wal-Mart plays a leading role in this story. Its business model has long relied upon strictly controlled labor costs: low wages, inconsiderable benefits and aggressive avoidance of collective bargaining with its employees. As the largest private-sector employer in the U.S., Wal-Mart’s business model exerts considerable downward pressure on wages throughout the retail sector and the broader economy. This model has multiplied across the sector. While employers like Wal-Mart seek to reap significant profits through the depression of labor costs, the social costs of this low-wage strategy are externalized. Low wages not only harm workers and their families – they cost taxpayers.

When low wages leave Wal-Mart workers unable to afford the necessities of life, taxpayers pick up the tab. Taxpayerfunded public benefit programs make up the difference between Wal-Mart’s low wages and the costs of subsistence.

This public subsidization of the low-wage model of companies like Wal-Mart received significant attention in the early 2000s. With wage stagnation, income inequality, and federal budget deficits of increasing concern to public policy, this issue is due for a re-examination.

Accurate and timely data on Wal-Mart’s wage and employment practices is not always readily available. However, occasional releases of demographic data from public assistance programs can provide useful windows into the scope of taxpayer subsidization of Wal-Mart. After analyzing data released by Wisconsin’s Medicaid program, the Democratic staff of the U.S. House Committee on

Education and the Workforce estimates that a single 300-person Wal-Mart Supercenter store in Wisconsin likely costs taxpayers at least $904,542 per year and could cost taxpayers up to $1,744,590 per year – about $5,815 per employee.

Federal labor policy can play an important role in reversing these trends, stemming the growth in income inequality, driving up wages, and reducing taxpayer costs. Many of these measures fall within the jurisdiction of the Committee on Education and the Workforce. For example, the minimum wage should be increased to restore the value eroded by inflation. Strengthening equal pay laws would help close the gender pay gap. Congress should enact labor law reforms to ensure that workers can freely exercise their right to organize and collectively bargain. Legislation to increase employment – through direct job creation – should be enacted as well, as unemployment remains a significant drag on wage growth.

 

The full report is available for download here.