There are plenty of other differences between the shopping experience at Wal-Mart and Costco. A peculiarity of local geography is that we find that the two Costco stores at our end of the Twin Cities metropolitan area are just never on our way to anywhere else, so we let our Costco membership lapse after just one year. For quite the same reason, we hardly ever shop at Wal-Mart. But we shop at Sam's Club (the Wal-Mart version of a warehouse store like Costco) all the time, simply because it is on my way to work and largely on the way to many of our other trips during the week. Today we built a trip to Aldi into our schedule while our daughter was at soccer practice about halfway from our house to that store. We love to minimize driving--driving costs both money and time. Some stores cannot thrive unless they are within SHORT drives of many customers. Some of those stores have to extract a lot of productivity out of each worker to pay the workers even minimum wage.
I still wonder when Amazon is going to go all-in in setting up major same-day delivery centers in most metropolitan areas in the United States. That could have a revolutionary influence on my shopping habits. And if robots can do more of the stocking of shelves, and eventually self-driving cars do most of the delivering, that business model could end up with huge market share. I'm very happy when workers at menial retail jobs are paid more--I have had such jobs (at
Sears and at Target, many years ago). But they best gain opportunity to advance themselves economically when they also can save on their own consumer spending in retail stores. Everyone likes low prices day in and day out.
Many, now. Logistics is (and has been) a massively growing field when it comes to deployment of franchises of restaurants as well as groceries and general goods stores. There is hugely growing sentiment against unnecessary driving, partly due to rising fuel costs but I also hypothesize that media pressure of said fuel costs as well as innovation from Netflix etc. drive this signal as well. "Why leave the house when you don't have to" has farther reaching effects than simple DVD rentals.
Great post, BTW - and a very interesting subject indeed.
" But they best gain opportunity to advance themselves
economically when they also can save on their own consumer
spending in retail stores. Everyone likes low prices day
in and day out."
When adding to the cart, the user can choose to add products publicly or privately so that only non-personal products are broadcast to their neighbors.
That's what Wal-Mart is doing, and they take a cut..
Trader Joes is owned by the north aldi brother.
But yeah, it's still no frills. Staples like milk and baking goods are dirt cheap, but I wouldn't chance the produce. Lots of processed food. Bakery is all mass-produced.
Interestingly, the supermarkets I've been to in Germany lately are becoming more like US ones (Rewe, Edeka) but some are still super no-frills (Penny Markt, Norma)
All Aldis in the United States are Aldi South. The two Aldis are territorially-exclusive when it comes to the Aldi branding.
Incidentally, Aldi South has a different logo from Aldi North. So you can go to any country with an Aldi and tell which half it belongs to.
I am not sure it's fair anymore. Part of it probably came from the fact that the fixtures used to be so run down. Long after all other stores had started using bar codes, Aldi employees had to memorize PLU codes.
It doesn't tend to be as good as Sainsbury's, and of course it doesn't compete with M&S or Waitrose, but Aldi is the only store which seems to bring both decent jobs and affordable essentials to poorer communities. I have a massive soft spot for Aldi.
I've actually talked about them on HN before, embarrassingly.
Probably mainland Europe (esp. France) has better options, I'm sure.
I can believe it, if only because the quality of the best fresh produce at Aldi tends to be very high, but that of the worst tends to be relatively low.
You definitely have to be a little more careful if you're looking for the best produce.
That said, I would be surprised if Tesco, Asda, or Iceland were included in this test.
People who care about quality and economics buy at Aldi!
... or maybe we in the UK are just used to much worse ...
I'm sorry, but no such thing exists. :)
At the same time, they have recently been getting their share of criticism for how they pay and treat their workers. Seems like they're still well avove Lidl, but not a prime example any more.
For the author's central point to hold true those numbers need to be more closely aligned. That is, they need to be roughly the same in % terms. They aren't, which means one or both of the players are doing something substantially different in their approach. Given that labor costs are the single largest expense for these types of business it's not unreasonable to reach the conclusion of those she's rebutting with this article. Namely that Walmart is overly maximizing profits based on the back of paying extremely low wages. To put it another way, if for some reason Walmart was told to bring it's margins in line with Costco the easiest way to do that would be to bring your wages up and keep your prices the same.
Let's do back of the envelope math based on the chart in the article. If Walmart had the margins of Costco rather than the current ones that would see it's profit dip from $15.6 billion to $7.53 billon. That in turn would "free up" $8 billion in what is now pure profit. With 2 million global employees you could pay them all $4K more. That's a 20% salary increase for the basic salary they highlighted of $20K per year.
I'm not bashing Walmart. I'm just pointing out that Costco seems to have made the decision to have meaningfully smaller margins than Walmart. Given where the bulk of their costs lie they must have had the conversation more than once about paying folks less to move those margins up to please Wall Street more. Yet they have decided not to do that. Perhaps it's simply because they believe the business benefit around being easier for them to be accepted in new communities (and thus grow) based on the real and perceived perception that they treat their workers well.
PS: Anecdotally Walmart opened near us two months ago. I have now been there 4 or 5 times. I am struck by just how many people there are working there on the floor. There seem to be too many whenever I'm there. They look bored and so congregate in groups and shoot the breeze. I couldn't get that out of my mind as the author kept stressing they really need a lot more employees.
In fact, a little known feature of Costco's business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.
Everything about Costco's business model is backwards.
That $1.7 billion is net income, which is after subtracting out the income tax. You have to compare to pre-tax income, which in the case of Costco is essentially just operating income.
75% of Costco's income came from membership fees in the last fiscal year, and similar or higher percentages in other recent years.
From Costco's FY 2012 annual report, page 25 (in millions of dollars):
Membership Operating income
2008 1,506 1,969
2009 1,533 1,777
2010 1,691 2,077
2011 1,867 2,439
2012 2,075 2,759
The membership fee, of course, serves another purpose. It reduces patronage by lower-income shoppers, and therefore helps to reduce shoplifting. The receipt-check is another deterrent. Since Costco has such a tight margin on its merchandise, it cannot tolerate industrywide shrinkage rates.
I'm pretty sure the revenue isn't net. It would mean they have absurd retail margins on their members and negative ones on every other product sold; which doesn't make a lot of sense.
>>In fact, a little known feature of Costco's business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.
That could just be their way of handling stocking fees. They handle a lot of merchandise they can't afford to stick into inventory.
AFAIK most supermarkets run this model; when I was in school in Ireland in the 90s, this model was explained to me with reference to the main Irish chains. They end up with a big chunk of free cash that they invest.
Net income is literally the "bottom line" number on the accounting statement. It's the number that coes out after accounting for everything in the business.
The console is the up-front purchase, which equates to Costco's membership fee. But Xbox and Playstation lose money up-front.
Instead, Costco operates on the Wii or the iPhone model, where you take most of your profit up-front and then operate the rest at a much smaller profit. (Though still positive.)
According to the data in the article, Walmart would have the same profit margin as Costco if they spent $3,500 more per employee annually. Ignoring part-time workers, salary-exempt, benefits etc., this is an hourly wage increase of about $1.75, still well under what Costco pays.
Wal-Mart's profits, I'd imagine, are entirely from markups, and a slight change in consumer behavior (higher prices on gas, higher unemployment numbers, smaller paychecks) makes them a volatile player.
Those people you see shooting the shit and slacking off are necessary. The reason why they're there is because if the store suddenly gets packed, they will be split up and given tasks. They're insurance. You can't not have them there, or you'll get customer complaints when they can't find someone to help them, there's too few lanes, etc.
And that's just during the day in front-end customer facing situations. They're constantly called back to inventory to do warehouse-type jobs, even if they're cashiers.
Aldi (in Germany) operates on a system were they don't have that insurance, and trained the customer to accept it. But that low level of customer service would only ever fly in Germany.
Whaaaa? The largest expense, by far, is most certainly cost of goods sold.
Say, you've got a single employee on a $60k salary moving goods worth $10mm, but at a razor thin margin, so your profit on the goods is $100k, and your net profit is $40k. If you want to increase your net profit, it would probably be easier and yield a bigger return to see if you can do something about your $9.9mm product expense than your $60k salary expense.
There's a floor, though, where that argument isn't as compelling. It's not like we're talking of dropping from 20% to 10% margins, here, Costco's 1.7% margins might not be sustainable, or might only be sustainable for a business with less fixed capital.
I mean, maybe you're right, maybe 1.7% isn't that floor yet, I'd just need more information.
But the last piece focused more on the fact that Walmart is in business relationships with more poor people than just its employees. So even if Walmart has poorly allocated its returns, I'd rather see those margins distributed to customers or foreign suppliers first, because my hunch is that the humanitarian impact would be greater on these groups, who I see as larger, poorer, and having fewer substitutes.
Exactly. The basic argument is that Walmart should engage in charity by paying above-market wages to its employees. But there are much more effective ways to be charitable; mosquito nets in Africa and anti-aging research comes immediately to mind.
Also interesting is that Walmart gets bashed for relatively low wages, but doesn't get credit for employing lots and lots of people. Imagine the reaction if they announced that they were doubling salaries and laying off half their workforce.
You are crazy if you think those are more effective use for WalMart's money, especially the anti-aging research.
But according to Givewell (http://www.givewell.org/) who do research into cost effective use of charity money, mosquito nets are very effective. Their #1 recommendation is the Against Malaria Foundation who "provides long-lasting insecticide-treated nets (for protection against malaria) in bulk to other organizations, which then distribute them in developing countries."
"AMF is a recommended organization because of its:
- focus on a program with a strong track record and excellent cost-effectiveness (more).
- standout transparency and accountability - it publishes photographs and reports from each of its distributions and requires that organizations that distribute its nets monitor the usage and condition of nets in the years following the distribution and track and provide monthly malaria case rate data (more).
- room for more funding - AMF has told us that it can use additional funding to expand its core program and has committed to reporting on how additional funds are used and what results are achieved."
Even if you don't accept Givewell's research, I think there is enough evidence here to doubt the statement that you wouldn't be "crazy" to think their were more effective use of money than mosquito nets.
The retirement funds of a large percentage of people absolutely depend on dividend-earning stocks. Let's not forget that those shareholders aren't Wall Street "fat cats." They are pension funds, teacher retirement funds and granny's retirement savings. So if you raise wages, you lower dividends (or raise prices, which lower demand) and THAT hurts the people that can least afford it -- those retirees that don't have the option to go find a higher paying job.
Let's look at it this way -- no one is forced to work at Walmart. If Walmart employees think they are worth more, then they can quit and sell their services to someone willing to pay more. If someone isn't willing to pay more, then obviously they aren't worth more. There's an argument that the government should simply require companies to pay more. That's fine and dandy, except now what happens to the cost of goods? It necessarily has to rise. So that means that everyone has to effectively subsidize workers' wages. Yet how is it fair that we have to pay more for goods (or higher taxes) to subsidize others?
In 2006-2007 I lived for several months in my car, ate Ramen almost every day for 6 months when I didn't have a job. I lost my apartment and eventually my car because I made some dumb mistakes both financially and personally. Yet during that time, I didn't ask for the government or any of you to give me some of your paycheck. I chose not to get married or have children until I could afford it. I didn't demand that you pay $2 more for a Big Mac so I could make more money. Eventually, moved to Korea, then China to English, then taught myself software development and now I'm doing ok.
These "sad" stories about people who work for 10 years at McDonalds for 7 bucks an hour don't move me one bit. If after 10 years you can't improve your lot in life, you're either stupid, lack ambition or you're a star in a Charles Dickens novel. There are plenty of stories about the single mom who worked minimum wage while earning a degree in night school and then going on to greater things. It can be done, it's up to the person. If we incentivize working shitty jobs, what's going to drive innovation and aspiration?
I refuse to subsidize wages in the name of "fairness." What's unfair is that I pay 30% of my income in taxes, plus sales taxes, property taxes, gas taxes, cell phone "universal service fee" taxes, and my telephone bill STILL has an excise tax on it that was supposed to fund the Spanish-American war! And what do I get for those taxes? I still have to pay $82 to get more pages added to a passport at the US Consulate. I still have to pay $25 at the DMV for a drivers license. I still have to pay yearly auto registration and inspections. I still have to pay tolls for bridges (and tunnels) that were built with taxpayer money (I'm looking at you Lincoln Tunnel with your $13 one-way toll!)
I have to pay almost 50% in taxes and fees for airline tickets and still have to deal with crappy infrastructure, a manically inept TSA, shitty transportation systems and public schools that I wouldn't send a dog to. Yet somehow certain groups of people get free cell phones, free medical care (I pay $1300 a month for a family of 4,) subsidized housing (there's public housing in Chelsea, NYC!) food stamp cards on which you can buy lobster and organic peaches and educational grants and subsidized loans for people to go to school.
I'm not arguing for or against any of those government programs, but if you're asking me to pay a buck more for a box of Kraft Macaroni & Cheese, you're out of your g'damned mind.
"more" here refers to "a greater number than", not "poorer than"
(That's old, they've dropped precipitously since then to something like 48%...)
DVD rental is a high-margin but stagnating market, while streaming is a low-margin but growing market.
The stock market believes that it's better to expand profitlessly than to remain small but profitable. See Amazon's P/E ratio.
Besides, Reed Hastings is a tech guy. He cut his teeth on the Purify memory leak detector. He claims that he always wanted to do streaming -- it's just that the broadband infrastructure wasn't well-developed In 1997, whereas DVDs were just then starting to take off. (And they happened to weigh under an ounce, which made them cheaply mailable.)
Some people think that being a tech guy is exactly what's blinding Reed to the fact that the licensing problem is a far bigger problem than the shipping costs..
Maybe that's more more of a load problem? They are probably there for the peak rush periods, and I would imagine forecasting those accurately is almost impossible, so you operate with a buffer. Lower wages enable them to be more flexible in handling these peak loads.
In terms of your point about the financial impact, a quick look at the SG&A of Walmart (20%) shows a big difference vs. Costco's (~9%). I don't have the breakout of employee wages, but it does seem like it's definitely a more labor intensive model. Then again, they probably could afford to pay higher wages, but the problem is that customers haven't given them a financial incentive to do so. I feel like the point the author was trying to make was a good one...many people that write about these issues should acknowledge the different business models instead of just quickly pointing at Costco and saying the model works with higher wages.
Even though I generally wouldn't shop there, I have no issue with walmart, for exactly the reasons this author suggests I wouldn't
I've seen really impressive growth around a truly rural Supercenter opening but it's mostly been limited to chains that satellite the Walmart. Starbucks, Lowes, Jack in the Box, CiCis, Chilis and a handful of other shops that are nationally or regionally owned businesses that would have probably waited out opening in the area had the Supercenter been fought off. There is almost a symbiotic relationship between these concerns and a Walmart or Target super store that opens that is evident if you've ever been to the suburban southwest.
I can't speak to the real economic impact of such a situation (maybe it's great!), but I do suspect that there are real cascading effects to small businesses in this scenario. Pizza places, chinese food places, your random donut shop, the lumber yard... they all take a hit. I don't know, maybe all these places were terrible in quality and service in the face of the efficiency of national chains, but it still seems intuitive that there is a wealth flight around this situation and one has to wonder if it's for better or worse.
But to be honest, I don't know.
If people have problems with the wages Walmart pays they should stop attacking Walmart and go deal with the people who actually set the minimum wages: your congress critter.
Going to any of my local Wal-Marts with grocery and it is the most crowded place of the store. While their clothing sections and miscellaneous house hold goods sections can be dodge the electronics section, automotive, and garden, sell many name brands I see elsewhere.
Understanding Costco by Coriolis Research (namely, Tim Morris).
Some mind blowing facts:
1. They pay their employees $10-$17/hr as opposed to Walmart (as discussed in the article)
2. CEO earned 350k in 2012, only twice that of a store manager at Costco
3. Margins are razor thin. In fact, an employee got yelled at for selling something at a higher margin (even though all the products were successfully sold within a week)
4. ~40% of Californians have a membership
5. 30% of inventory is at the store within 8 hours
*Note: My employer is a consultant for Costco, and I might be too, so I'm definitely bias, but I love the company.
I seem to recall reading their markup is <17%, no more than one part in six.
Safeway's gross margin: 29.6%
Costco's ROIC: 17.8%
Safeway's ROIC: 4.9%
Walmart follows 'classical management' of negative reinforcement and cutting expenses down to the bone including salaries, benefits, and other stuff. They are willing to pay executives millions while letting most employees work for slave wages with little to no benefits to cut down on costs as much as possible.
Costco follows 'participatory management' in which management gets involved with the employees and empowers them to make their own decisions. Executives are not paid millions and their salaries are based on how well the company does to encourage growth. Employees are paid more so they will be more productive and with good benefits to take care of health problems and family problems so they don't interfere with work. If the company is losing money, they do job cost analysis to see what products and services cost more to support than the revenue they bring in, and then quality is improved on those services and products and if it cannot then those products and services get cut instead of the people and new products and services replace them.
Steve Jobs did this with Apple, cut out products and services that didn't bring in enough revenue to justify keeping them, cut his own salary as the iCEO, improved the quality of products and services or come up with new ones to replace them. Walmart and other 'classic management' companies just don't understand how to do that so they take it out on the employees instead.
I'd argue that spending 0.01% of revenue on key executive compensation (which is the 'paying executives millions' you talk about) is irrelevant to Wal-Mart overall and how much they can or can't pay their workers. Even if you stripped the executive compensation and gave it to the workers (2.2m of them), you'd only be handing out $30 to each person. That's a few hours of work total, and amortized over a year? Not a factor at all in the grand scheme of things.
The article is well worth a read. It's interesting and insightful and discusses more interesting things like business models, target demographics, value-mindedness, etc. I recommend it if you can get it to load. (It was fine for me.)
Is it reasonable? There's a lot of money to be made by the studio that can prove it's not by making consistent blockbusters without stars. But nobody has figured out how to do that yet, so Pitt keeps getting paid. Outcomes are what matter, not hard work.
EDIT: I realized there is a studio that makes consistent blockbusters without stars: Pixar. In a way, they're like the movie studio equivalent of Costco, since they figured out a way to make hit movies with far, far fewer (but much higher paid) laborers. But like Costco vs. Walmart, Pixar can't make all the movies that the other studios can make, so they'll likely always have to settle for a small chunk of total box office receipts.
But it's not at all the case that the executives are "stealing pay" from the guy working on the floor or whatever other crazy rhetoric people are saying now.
If the CEO is stealing money from anyone, it's the shareholders, and for a whole bunch of reasons (good and bad) they have been unable to get a cap on that.
I would argue that Walmart pays minimum wages because they can and their customer base doesn't really value the benefits of paying higher wages and 'participatory management' - primarily lower turnover and thus more engaged/invested employees who deliver better service and higher productivity. Walmart most likely sees their employees as replaceable and the average Walmart customer is driven by low prices and not great customer service. To that end, the lower the Walmart cost structure, the more margin they have to work with to stay competitive (without having to lower CEO salaries, etc. of course).
Costco and Trader Joe's are known for great customer service and easy return policies. Based on my observations, people who shop at Costco like to save money, but it's from a best value angle and not from an absolute cheapest I can get angle. The Costco consumer has to be willing to shell out an annual membership fee up front and you're buying in bulk which means you have to be able to pay for goods you use in the future. Trader Joe's wants to be the neighborhood store and that means they need happy employees, not employees who are thinking about how they're going to pay for the knee surgery they badly need.
I'm probably making broad generalizations of the different customer bases here but it's what I've personally observed.
I would say the same for the employees. Your average Walmart worker would probably be washed-out in a shift or two at Trader Joe's. Everyone at TJ's is busting their ass, Walmart employees seem to just be standing around doing nothing but talking to one another.
Walmart, on the other hand, seems to scrape the bottom of the barrel with their employees. As long as the employees show up to work on time and don't steal merchandise, they're good.
Yes, it's known as paying "efficiency wages." Which is mentioned in the article.
The article suggests that TJ's limited SKU count and upscale clientele allows it to pay efficiency wages. Whereas Wal-mart has a massive SKU count and a lower-end customer base.
Can you name one Fortune 500 company that doesn't pay executives millions? Facebook, Google, and Apple pay its executives millions, and yet its contracted janitors get low hourly rates. Where's your rage?
From moringstar, Costco CEO's compensation was ~$18.5M, Walmart's was ~$62.5M.
In 2006 (the easiest numbers I could find) the average Walmart employee earned ~$10/hr vs $17/hr at Costco. Walmart employees also had less health coverage (<50% vs ~80%) and were responsible for %33 of the cost vs %8.
source: The High Cost of Low Wages - Harvard Business Review.
Apple's head lawyer alone made $68 million last year, not to mention other executives. No outrage?
As for bringing up Apple, are you trying to make me defend Apple? I'm no fan for a whole host of reasons, red herrings though they may be.
If you really think they're equivalent to Wal-Mart's minimum-wage employees, you are either extremely ignorant or just delusional.
Underneath the pompous attempt at technical-sounding language, what are you trying to say?
If you really meant "...at least an integer multiple of the average wage...", this is a really pompous way of saying "some amount, which could be infinitely negative", since integers include negative numbers of unlimited magnitude.
If you really meant "...at least a positive integer multiple of the average wage...", that's a really pompous way of saying "...at least the average wage..."
If you really meant "...at least an integer > 1 multiple of the average wage...", that's a really pompous way of saying "...at least twice the average wage..."
I didn't say that "integer", standing on its own, is either pompous or technical sounding.
My criticism was that, as written, the sentence is actually completely meaningless ("X is at least an integer multiple of Y", where X and Y are from context real-valued measures, means, after all, doesn't actually provide any bound, lower or upper, on X), and that for any conceivable meaning that could have been intended, and that, given the word choice and the way the general structure was overly convoluted for any of the conceivable meanings intended, appeared to be a pompous attempt to use technical-sounding terminology rather than simple direct statements that would clearly communicate the intended meaning.
I notice that you still don't say what it is you actually meant by the completely meaningless phrase you used.
Absolutely no one who genuinely wants to address a linguistic ambiguity opens with calling it "pompous". There is simply no way you were acting in good faith.
You just wanted an excuse to be a jerk.
No, I didn't. My actual belief was that the last two were about equally likely, with a slight favor to the first over the second, and that it was about as likely as either of those two that you meant something else that I hadn't thought of, given how unnecessary the whole qualification was for the second interpretation, and how distant the third was from any reasonable (even considering understandable mistakes in word choice of the type that could support the second interpretation) relationship to the words you actually used:
* The first interpretation I assumed to be unlikely because it was completely meaningless (but I didn't consider it impossible that you were knowingly making an empty statement.)
* The second I thought was plausible because using "integer" in place of "natural number" or "positive integer" is a fairly common error, this would obviously be the interpretation of the three presented with the most excess verbiage, but of the non-empty ones it was the easiest mistake of word choice to understand.
* The third involves a bizarre, nearly inexplicable, error of meaning -- I've literally never before seen anyone use "integer" to mean "at least two" and can't see any reason why anyone would expect anyone to understand "integer" to mean that -- but provided some explanation of why you'd have any phrase modifying "average wage" at all.
By the way, the "inexplicable" becomes a lot more explicable when you allow for the possibility (in this case fact) that the writer was suffering extreme exhaustion at the end of an incredibly long day.
Why not just apologize for being a jerk and move on?
The number that caught my eye is Revenue/Total Employees. That brings home some realities of markets. Total revenue in the market is the amount consumers spend on groceries. Thats more or less constant. Wall Mart's low revenue/employee ($211k vs $620k) means they employ more people for every dollar of market share they have. This is an enormous difference. It implies that every time Costco win $1m in market share from Wal Mart, total employment drops by 3.1 people.
Aldi (and its slightly upmarket cousin, Liddel) serve a similar market segment to Wal Mart in Europe. Is suspect they do it with even higher revenue per employee. These store are all about labour efficiency.
This might be a "be careful what you wish for" scenario for retail workers and people concerned with wages at the lower rungs. Employers might be able to afford higher wages, but demand for those wages will go down. In that case, its hard to imagine wages really improving in the long term. Even if they did, total employment would be much lower and that would hit the lowest skill workers hardest. When you pay better wages, you can be choosier.
This may be taking it a little far but.. I think what we see running through this scenario is an example of how improved efficiency breeds wage inequality.
The benefits of improved efficiency and automation, as you have pointed out, skip over employees. Some of them accrue to customers in the form of lower prices, but largely they accrue to management and shareholders in the form of increased profits. Costco appears to be the exception that proves the rule, here.
In theory, efficiency and automation should be a net benefit to society, as we can then enjoy the same level of goods produced with less labor involved, but the uneven distribution of benefits causes lots of avoidable suffering on the part of laid-off workers.
A guaranteed basic income for all (as opposed to means-tested benefits like welfare and the EITC) would fix a lot of that. It would remove the suffering from losing your job, and give investors an incentive to automate even more, as now you would have to pay people quite a bit to motivate them to accept low-skill menial jobs.
We can fund such a basic income in part by dismantling the welfare state bureaucracy. No means testing makes distribution much simpler. The rest through higher taxes on income beyond the basic.
According him, surprisingly enough they make money while customers don't bother to collect change, or when the cashiers don't have change they just leave it at them. They keep a track of how much change has collected like that hourly or at half-day and then they pocket that. The company doesn't lose money anyway, the customers give away the change like tip. But in the process these guys make a lot of money.
According to him, the money he makes through the change is actually way more than his actual salary, nearly like a multiple of his salary. And that is how he built much of his fortune back here in India.
20k is on the low side, but one should still consider their own income before having children, especially two.
Lack of demand, on the other hand...
Yes capitalism is amoral so people will certainly be willing to pay to increase salary, but they are also willing to buy machines, outsource work, make customers do more and other things that reduce the need for employees.
Where do you think the money for EITC/WTC comes from?
The catch to this line of reasoning is that you might have a perfectly well-paying job when the kid is born, but several years later endure a drastic shift in your professional life that's out of your control.
So I don't know. "Must pay enough to support family of 4" is incredibly arbitrary, and EITCs for low-income families (as another poster mentioned) sounds icky to me, since now everyone else is just subsidizing low-wage employers. Not sure what a good solution might look like.
At the micro level as a rationale economic player you in theory should make that determination. At the macro level it's our job to decide whether we want one income families to be below the poverty line and what are the broader implications of that.
Note, that I'm not against helping the poor. Charity is great, and helping people move up is great. Simply telling Walmart they should pay more for the same work is stupid. If you want to make more, you should provide more value.
It's really bizarre to call paying people a fair wage charity.
If you're born a millionaire like Paris Hilton, and you capriciously decide to become a large shareholder of Walmart's stocks one day, you... well, you just sit back and watch the money roll in without doing anything. Even though you're providing zero value to society you make a very large amount of money. In this way, not only is clarky07's profoundly and bizarrely misinformed, it is also selfish and offensive.
I'll be the last to argue that we live in a meritocracy but in your example the capricious heir is in fact providing capital to the economy, taking on the risk that if that business fails the capital is gone.
Investors wouldn't take risks if they couldn't reap rewards from them, which means workers wouldn't have the jobs either. The end result would be even less fair.
In any case, the modal investor isn't Paris Hilton or Warren Buffet, it's an ordinary working stiff trying to save for retirement in his 401k, or a pension fund for workers at other companies.
Someone who's working at Walmart does not make a lot of money, they most likely cannot afford to give their children the best education, they cannot afford a reliable car, they're more at risk of failing to make the rent payment due to some unforeseen accident.
Someone who's in the financial position to be able to comfortably invest their money, or is otherwise a millionaire, even if they lose a good few hundred thousand dollars, it will not affect them much. At least, not as much to pose the question of if they'll be sleeping on their own comfy bed or in a homeless shelter.
When you say that people "deserve" minimum wage because that's all of the value they're providing to society, this is what you're talking about. You're talking about putting them in a very shakey position, you're talking about making them borderline-homeless.
And we're not just talking about millionaires bearing the risk, either. About half of Americans own stock one way or another.
What makes you think everyone who's poor got there from making poor decisions?
That is, making poor life decisions will lead you to poverty, but that doesn't mean being in poverty meant you made poor life decisions, and that wasn't claimed AFAICS.
The corporation would cease to function without them.
Paycheck is not a measure of value added. Most of the time it doesn't even correlate to value add.
But paychecks are also capped by the price of substitute goods, such as self-cleaning robots, self-checkout and other mechanical help, as well as alternatives like reduced hours or staff.
"does the market value the work being done by that one wage earner enough to support a family?" and partly
"should the state step in and support a family when the market value of their labor is insufficient to support that family?"
And to what level is support needed?
No answers here, just questions.
On a side note, a family of four making $20,000 will qualify for an additional $10,000 in EBT and EITC as well as free healthcare (Medicaid), bringing the wages paid by Walmart and Costco much closer together.
We should focus on helping people become self sustainable, not perpetually on the dole. Wal-Mart doesn't help here.
But of course, it seems that only the poor people want to reproduce anyway.
And as you say, affluent people typically behave as though they don't want to reproduce anyway. In some cases that's actual lack of desire, and in others it's because by the time they finish climbing academic and career ladders and jumping through all the hoops, they're too old, but the end result is the same.
This is only going to get worse as everything moves from manual labor to software. We will need more and more developers and less janitors, less cashiers, etc.
In 50 years there will be very few unskilled jobs. And they'll probably be something stupid like clicking ads or filling out surveys full time.
True, but there's an interesting twist. As more people are hired to write software and build computers, some of those people create robots, the robots take over more of the unskilled jobs, which further accelerates the process.
The middle class is GONE, and the lower class has grown immensely. So as a proportion, sure, they reproduce more. But that's just because we've grown so many of them.
>I don't want a world where people consider their own income before going on a trip around the world _and_ find that they can't afford to take a trip around the world and not live in poverty, and have to miss out on traveling the world.
Everything, including children, are a cost. Is it not better that people look at the cost before, rather than after, they make a purchase? Especialy with something as important as a childs wellbeing.
Anyway it takes a lot less money to raise a family than you might think it does. My grandparents raised my mother on next to nothing, my parents raised me on very little initially.
Or for that matter, three, since the statement seems to be assuming 3 children and one adult (if there was a second adult, why would it be a single-earner household if they are under the poverty line that way? Surely the other adult should at least be on welfare or disability...)
I don't have a citation, but it's kind of self-evident. At the very least, people don't expect a family to cost so much, and think if they're prepared for it beforehand they'll be fine. You can't be prepared for poverty with a family.
Also, I think our society should still be structured to allow a single earner on minimum wage to support a family of four, without going on welfare of sorts. It's really complicated though, and for every argument supporting one side of this argument you can always find a really good rebuttal.
How could society be structured to guarantee higher wages to unskilled workers?
What you just described is a family of 4 with a total income of $30k+.
Per capita GDP of $45k means that GDP per 4 people is $180k. That $45k number is per person, not per worker.
So either the claim is that $30k is not that bad compared to $180k (unclear, a priori) or ... something?
I agree that household income is a more interesting thing to compare to for this case, though, but even more interesting would be comparing to similar households. Otherwise you're comparing the income of our hypothetical family of 4 to the incomes of 1-person households, incomes of households containing just a student, incomes of households containing one or two retirees, and so forth.
Luckily for us, such information is out there; http://www.census.gov/hhes/www/income/data/statistics/4perso... lists the median family-of-four income in the US at $67,000 or so in 2005 (though by state the median ranges from about $50k to about $90k, which shows the problem with talking about aggregate "United States" numbers). http://www.census.gov/hhes/www/income/data/Fam_Inc_SizeofFam... has similar numbers for a few years later... http://www.census.gov/hhes/www/income/data/historical/househ... has quite a bit higher numbers than that for 2011 ($75k median nationally), which is a bit surprising to me, actually.
None of which answers the question of how reasonable an income of $30k is for a family of 4, of course.
Unless I have been grossly mislead, if singer-earner salaries had appreciated like CEO salaries from the 1950's to now one parent could afford to stay home or just work part time. I don't know why it should be necessary for both persons of a marriage to work full-time on average.
There are always going to be shit jobs meant for teenagers that pay wages good for teenagers (cashiers, part-time lifeguards, sandwich assemblers, etc). If an adult tries to support 3 other people with such a job, they are going to have a very difficult time and that should not surprise or disturb us.
You aren't going to get companies to scale their pay based on what the individual employee needs. If you did, would McDonalds have to pay the fry chef with 7 kids more than the fry chef with 3 kids, who is in turn paid more than the 19 year old fry chef who is trying to pay for community college and car insurance? That would be absurd. If you think that somebody needs to take up the slack, you need to look to government, not corporations.
As women entered the workforce, this created more supply, which drove wages down, which forced more women to enter the workforce. Similarly, two-earner households could outbid single-earner households when purchasing real estate, which also drove the need for a two-earner household.
This transition is not reversible. However, it only happens once (excepting polygamy).
I don't think people are concerned with the wage earners as much as they are about the welfare of their children when they say things like this.
So the number stated is the mean, not the mode or median.
Having done a few years time in retail, I find this part a bit telling. I'm curious if the author has ever worked in a department store? Many department stores assign various employees to ....departments in the store. The actual SKU count you need to mentally juggle in your head is a fraction of what the entire store carries. Increasing the number of employees in a department and paying them better should give you a better knowledge on the floor of where something is if only because customers can find a department member. In my Wal-Mart it seems like you'd be lucky to find a department member in any particular department, except maybe automotive or electronics.
Economic realities notwithstanding about where the money comes from to hire more employees or pay them more of course.
She means "hypermarket," where groceries are sold alongside general merchandise.
I think that this guy is saying that Wal-Mart can't do what Costco does because it has more SKUs and thus a higher density of employees. But TJ's density is much higher still, and it pays like Costco does.
I find this example particularly baffling, as one visit to TJ's should be all one needs to recognize that it's not even in the same category as a store like Wal-Mart.
A Trader Joes customer is willing to pay for customer service and a Walmart customer is not. As a society we may say well thats an unacceptable attitude on the part of Walmart's customers and then put them out of business. But at the end of the day its not like Walmart's executives would be the ones picking up the tab, its the customers.
Walmart's customers are not willing to pay that. They're willing to deal with no customer service and bad quality for rock-bottom prices.
It's a big difference that showcases the two business models. When I know exactly what I want to buy, (A thing of Lemon Pledge, some Worcestershire sauce, and a package of cue chalk) Walmart is wonderful. When I'm not quite sure, a store with good customer service beats Walmart every day. I would never buy a bicycle at Walmart, for example.
Quite the fundamental difference.
It isn't the density per se, it is the density of a a much larger store that doesn't have the margins that trader joes has. They are two fundamentally different business models. Retails stores targeted at upscale consumers can afford to spend on salaries to give the service that their customers want. Wal-Mart needs low prices and lots of products to satisfy theirs.
also, I find the link in the S.H.A.M.E. project of interest.
From that I wondered if the article itself was just some form of PR or politically motivated rather than unbiased journalism.
Calling ad hominem is well and good and something to keep in the back of your mind, but I tend to agree with Daniel Davies that "giving known liars the benefit of the doubt" is more likely to steer you wrong.
Let's also get some context about where these theories are coming from. If people understood why people like her are shills and who they're shills for they might be a little more skeptical.
It's very obvious that Walmart allows less wealthy people to buy more. Paradoxically, the very people suffering from stagnant blue-collar wages are Walmart's customers.
Without government benefits, he couldn't afford his rent and he couldn't afford his groceries. Without his job at Walmart, he'd be eligible for even more benefits. But somehow it's Walmart that's being subsidized, and not his grocer or his landlord? Not to mention Costco, who's paying him $0, while Walmart pays him something, at least.
This is false. The biggest government benefit that someone employed at Walmart gets is the EITC, the _Earned_ income tax credit. For a person earning 20k with family of 4, the EITC would be near 5k, or a quarter of the salary. If the person was not working, the government (usually) does not pays anyone 25k for non working. Moreover, without the $5k EITC, it would not be economically feasible for this person to work at Walmart, and Walmart would have to simply pay its worker more to at least find people who can eat enough. The government is absolutely subsidizing Walmart in tune of $3-4k per worker.
Also, the threshold for "find people who can eat enough" is far below $25k (proof: Mexicans eat enough with a GDP/capita of $16k, and Mexico is a fairly rich nation).
a few retirees or people living with parents would work there, but not enough to fill out their work force
this is because wages for unskilled labor tend to approach the minimum you have to pay for people to live
and since the government is footing the bill to reduce that minimum to very little, Walmart can get away with paying very little
if government decided to take away all benefits for people currently employed, Walmart would have to raise their wages because the workers would quit in droves to sit on welfare instead
Could you explain, ideally by using numbers (either real or example) to illustrate your argument? Something along the lines of:
No government subsidies, no job at walmart: earnings + unearned income = $x
No govt subsidies, job at walmart: earnings + unearned income = $y
And if Walmart is relying on under-paying what its employees are worth, why don't those employees find jobs elsewhere? At worst, it's the government's fault for incentivizing them not to with benefits that drop off faster than their earnings grow.
2. If you want to retun something; you need to talk with
the Angry Manager.
3. Now this was fine and dandy with electronics, but
it's a whole other story with grey market high end watches.
4. I try to pass this information along whenever I can.
5. I only use Costco for prescriptions. I try to use
someone else's card to by toilet paper.
6. Costco used to be great, but they need smart senior
management. I don't think you can take an angry employee,
and increase revenue. I've just seen bad marketing decisions over the last decade.
2. Not true. Regular folks at CS desk usually ask only one question: "Anything wrong with it?". You refund does not affected by the answer.
4. Don't spread FUD.
My prediction is that within ten years, you will be able to tell the success of upmarket stores by the number of electric car chargers in front of them. The wealthy has always found ways to reduce their costs in ways that poorer people cannot easily duplicate, like reduced banking fees to draw their business.
Well, Wallmart employees are so poor they are forced to shop at Wallmart. If they got higher wages, they would probably shop at Trader's Joe or Wholefoods.
By keeping poor people poor, they actually increase their customer base.
In other words 40 years ago the minimal wage in the USA was about $22 USD using today's silver price as an inflation indicator. Using 2013 data 22.00 USD is on par with average American hourly pay. This what was the minimal wage of 1969 became an average pay in 2013. So if you ever wonder why your grandad working single simple job could support his family with stay at home wife, 3 or 4 kids, have vacation house and literally no debt – that's why. The average pay is 3 times lower today than it was 40 years ago when the real money – gold and silver – are used as an indicator. Of course some will point out to believe that gold and silver prices are in the bubble territory and that's why my numbers don't make any sense.
The problem with that reasoning is that gold is not experiencing bubble pricing. How do I know that? Because gold mining cost is at $1,200 with gold price merely covering it at $1,400. Bubbles are experienced in assets that sell by multiples of their real price, not the ones that are sold basically at the production cost. The staggering truth is that the current gold price simply reflects the high cost of living in the US today. The only correct conclusion seems to be that an average American worker is as poor today as minimal wage worker was 40 years ago.
No wonder fast-food strikes set for cities nationwide: http://www.seattlepi.com/news/us/article/Fast-food-strikes-s...
The basis of your argument is wrong. An individual commodity like gold can't be used as indicator of economic levels. It is just as affected by supply and demand as any other commodity.
This is similar to when people try to compare the price of gas at the pump to the economy as a whole ("back when I was kid, gas was 10 cents a gallon, and now it's $3.50! Why aren't wages 35 times higher!").
I love your quote: "back when I was kid, gas was 10 cents a gallon, and now it's $3.50! Why aren't wages 35 times higher!"
I think mine is better: "back when I was kid, gas was 10 silver cents a gallon, and now it's still 10 silver cents! Why wages are 3 times lower in silver terms!"
Because if you google it, you'll know that barrel of oil price in real money has been the same for the past 50 years. About 1/15 price of ounce of gold. I.e. 1 ounce of gold buys you 15 barrels of oil. With +/- 5 barrels deviation depending on the market cycle. But the average is 15. Your quote presents exactly why gold is much better indication of inflation than some government burocrats and their ever-changing formulas to please the Government.
The consumptive demand for gold could be met for some absurdly long time using the gold sitting in repositories, there is no actual need to produce it, it doesn't particularly have a production cost.
Let's say iPhone apps. Once they become so plentiful and cheap (free), supply side (developers) start doing other stuff, for example programming web sites, or desktop software. This causes rarity of new iPhone apps, so people start to be willing to pay more for an (let's say) iPhone game because there are less and less game issued every week. The prices going up makes new developers entering the scene, etc.
Another point, I'd like to make is that gold mining cost has been just $800 per ounce 2 years back. This just shows you how inflation works. Gold mining is energy intensive and labor intensive. Once labor cost and energy cost are up, gold price is up too. That's why the Government hates it so much because it just simply shows how big the real inflation is while the Government tries to tell us all we have below 1% inflation per annum.
Very few people are interested in the price of silver, we are far more interested in what a steak cost, or a car, how far they go on a gallon, what a gallon costs, that fresh vegetables are available and that we can buy them, etc.
Turn off CNBC talk and go shopping yourself and show me falling prices. Because there are none. Cost is going up across the board for everything. Can't believe there are still people out there who prefer to listen to Government propaganda of low inflation to opening their own eyes and seeing prices of everything going up. Health insurance, cars, food, even water. While their price in gold terms has been stagnant for the past 50 years. You tell me why.