Low Wages at Walmart. Cause or Effect?

In this post at Cafe Hayek, Don Boudreaux addresses the idea that Walmart imposes costs on taxpayers because it pays low wages. This line of thinking says taxpayers “subsidize” Walmart’s low wages through the welfare benefits many of Walmart’s workers receive to help supplement their income.

While I think this line of thinking is tenuous, there may be more to it than Boudreaux lets on. I think it’s possible that, like most things, government action has created distortions in the low skilled labor market.

A way to test it would be to eliminate welfare benefits. If true, then Walmart may need to pay more to attract and keep workers. Problem solved.

My guess is that the pay distortion is minimal, though not non-existent. It may be on the order of adding a gallon of water to a good sized pond. The change in water level would be imperceptible.

I think there’s another larger distortion that the welfare benefits have created that would be undone if welfare benefits were eliminated.

On the margin, I think the presence of welfare benefits may have caused a number of folks to decide to stay in low-paying jobs that a generation or two ago were more suitable for actual entry-level workers like high school and college students, people just getting started and true part-timers looking to supplement another full-time salary in their home.

They decide to stay in a low-paying jobs this because what they earn from their job plus welfare benefits satisfies their needs.

So, the bigger distortion that might be undone by removing welfare benefits would be to see entry-level jobs turn back to entry level workers.

One other thing I would like to mention. While correspondents that Boudreaux addresses like to demonize Walmart for paying low wages, they say nothing of the benefits Walmart brings to society by enabling consumers to live cheaper.

I suspect that such correspondents might respond, Walmart’s inexpensive goods have been made possible on the backs of low wage workers!

If so, they wouldn’t be consistent with their original argument because they will have just admitted that consumers, not Walmart’s owners, receive the benefit of the low wages through low prices. And, so it would be consumers, not owners, who would need to pay the price of higher wages.


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