conservatives who are still unclear on the distinction between big
business and the free-market, consider exhibit #1: Wal-Mart CEO Lee
Scott's rallying cry on October 24th for a higher federal minimum
wage. Wal-Mart has been a target of liberal activists in recent
years, and so Scott's announcement may cause some cognitive
dissonance. It should not.
Big labor is on
one side. Big business is on the other. And then there is the
typical American consumer and taxpayer. We should not confuse these
The free market
works to the advantage of the typical citizen and suffers
relentless assault from special interests that profit from its
disfiguration. Big labor favors taxpayer-guaranteed benefits,
curtailed competition, and protection from cheap labor (at home and
abroad), while the strategy of many big businesses is to lobby for
corporate welfare, tax breaks, and ways to stifle competition.
Small businesses are forced to play the market purely and without
any favors, lacking the power to lobby politicians. Until its
latest move, Wal-Mart was more of a pure player, making profits by
innovating in the marketplace.
Most people would
agree with the principle that in a free society, Wal-Mart should be
free to engage employees with whatever compensation package the two
parties both accept. When Wal-Mart recently came under fire
(wrongly) over its health benefits, it unwisely responded by
suggesting a number of so-called socially conscious policies,
including calling for a government role regulating the compensation
of its competitors.
No single issue is
more confusing to legislators who want to do the right thing than
the minimum wage because on the surface it symbolizes "justice for
the little guy." But truth is rarely superficial in economics. In
fact, the poorest of the poor are kept out of the labor market when
the price of low-skilled labor is set artificially high through
minimum wages. A minimum wage of $6 an hour makes it illegal for a
single mother to work for $5 an hour, even if she wants to.
Why would a
government deny an individual the freedom to work? Because she
deserves more, some argue. But regardless of what a low-skilled
worker deserves, unemployment is what she gets when a
minimum wage is imposed. There is no debate among serious
economists that this is true.
A higher minimum
wage also forces higher costs on small businesses in small towns.
Yes, those mom-and-pop stores are exactly the American institutions
that Wal-Mart is competing against. This means that the corporate
strategy of manipulating the price of labor is more than a PR
stunt, as some critics claim.
egregious statement is this one: "We can
see first-hand at Wal-Mart how many of our customers are struggling
to get by. Our customers simply don't have the money to buy basic
necessities between pay checks."
That is a surprising statement, given the 9.4
percent rise in Wal-Mart sales over the last 5 years. As for poor
customers, surely Scott knows that the number of people living
below the official poverty line is roughly the same as it was in
1996, the last time the minimum wage was raised, even though the
population has grown by millions. The result is a poverty rate
that's a full percentage point lower, even though the
minimum wage hasn't changed.
Only 2 percent of America's workers make the
minimum wage, but 5 percent of the workforce is unemployed. Which
group needs the most help? Consider also that most minimum wage
workers are part-timers and under 25 years old and that half are
bound for a raise within a year. Clearly, raising the minimum wage
won't help the unemployed at all and will only make their job
Wal-Mart often honors its rural roots and
maintains its headquarters in small-town Arkansas. But the idea of
a national wage is actually hostile to rural communities. Small
towns have lower costs, meaning that its workers don't need a
"city" wage to pay for the exact same things that urban residents
buy-especially real estate. So in effect, when the national
government imposes a national price on hourly labor, cities and big
companies are given a competitive advantage at the expense of
small, rural employers.
After a private internal memo on controlling
medical insurance costs was leaked, Wal-Mart is now being hammered
anew by critics. These are exactly the kind of people who want to
control the private affairs of employers and employees. But
American firms from GM to Delphi to Northwest are becoming
hamstrung by their exploding health care costs, potentially harming
American competitiveness. The lesson should be that
businesses-which are not obligated to provide any health care to
employees-should be free to compensate employees however they and
their employees see fit. Congress could remedy the mess in a single
stroke by treating benefits as income under the tax
What is lost in this debate is that Wal-Mart
has been a major factor in enriching America's poorest consumers.
Americans can buy more goods (including medicines, clothing, and
fresh food) than ever before thanks to Wal-Mart's effect of
lowering prices in real terms. It is a shame the firm has chosen to
muddy this legacy as a poverty fighter with this misguided attempt
to raise every employer's labor costs.
endorsement of a higher minimum wage should not give comfort to any
senator or congressman who thinks that he or she can now support it
as a conservative. In the end, it
doesn't matter who is calling for a higher minimum wage. It is a
bad idea whether it comes from the AFL-CIO, a Fortune 500 company,
or the North Pole. Congress should never pass legislation that
artificially controls wages or prices.
Ph.D. is the Bradley Research Fellow in Labor Policy
in the Center for Data Analysis at The Heritage