Walmart, Unions, and Un-Fair Labor Practices

[The other day I was mildly annoyed by an email I got from Care2 asking me to sign a petition against Wal-Mart. Coincidentally, I recently had a conversation with a good buddy of mine about Wal-Mart, unions, and related topics. WhenI got the Care2 email, I forwarded it it to him and asked if he’d write an entry for my blog. He agreed. This fellow, who we’ll call Lightwave, earned an MBA in 2001 and an MS in MIS in 2002. – Funky]

I’ve heard a lot of talk lately of how awful labor practices at Walmart are unfair to works. I recently read about Walmart’s "ruthless" tactics where Walmart closed a store rather than negotiate with unionized workers. Indeed, there seems to be a lot of talk about how Walmart and other publicly traded organizations are treating non-unionized labor. I’d like to discuss this, but first, let’s get on the same page about some basics of publicly traded organizations.

Publicly Traded Organizations, Investments, Stocks, and Profit

Walmart makes $10 Billion per year in profit, they can afford to share! This is the first typical cry in any plea against big business. They make so much money that they obviously must be taking advantage of someone. Those who make this assertion, however, won’t tell you the secret behind these huge numbers. That to make such a profit individual investors had to put $210 billion into Walmart (current market capitalization as of today) to begin getting that $10 billion a year. That’s right; the little old lady that lives next door to you who put $99.07 into Walmart to buy two shares is seeing the part of the company she owns. Most people would call her an investor, but really she’s a part owner of the company, so that’s what I’ll call her.

So here she’s seeing a whopping 4% return on her in vestment, right? ($210B / $10B) Well, not exactly. What she actually gets is about a 1.13% dividend. On top of that, she’s taking on the risk that the company’s value might go down, or out of business, meaning she looses her investment. Sounds like she should go with an insured savings account at the bank where she gets a better interest rate and she’s insured against loosing her investment if the bank goes belly up.

Well, that’s not entirely accurate either. The other factor we’ve left out is that the value of Walmart’s stock might go up (capital appreciation). Then when she eventually sells the stock, she’ll get an additional return on her investment. Let’s see how she’s done if she’s kept her money in Walmart over the last year. The value of Walmart’s stock has gone down almost $5 per share. That means this owner of Walmart, owning just a tiny fraction of the company, has lost about $9 for her $99.07 investment. Apparently Walmart can’t afford to share.

But Walmart made $10 Billion in profit, where did it all go? Well, some of it went back to investors, in the form of that dividend we saw. The rest, one way or another, gets reinvested in the company (buying back stock, paying of debt, building new stores, etc.), to maintain or build the business, protecting as much of the money our owner put in as possible.

So we’ve seen that apparently Walmart doesn’t seem to have huge gobs of money to be spreading around to its 1.5 million employees. Indeed, simply increasing the average wage of associates from $9.98 to $11.98 per hour would cost an estimated 6.8 Billion Dollars! Perhaps it would be better to provide healthcare for the 54% of Walmart associates that don’t have it. That would only cost an estimated 4.2 Billion Dollars. Of course either of these moves would mean our owner apparently gets no dividend, and looses even more of her investment. Remind me again why we would invest our money in a company loosing us money? No investors means no company. (I could go into how this comes about through hostile takeovers and other means, but I’ll refrain).

Walmart’s Labor Practices

Working Off the Clock

There have been substantiated allegations that Walmart works its employees off the clock. Here, employees were working during breaks or other unpaid time. Certainly the law prohibits this. How horrible a practice is this? Well, in my experience working in both small and large retail organizations, every single one had employees working off the clock. This problem is truly rampant for organizations throughout the U.S where there are pressures to keep labor cost down. While many would claim this as an unfair labor practice, I suggest it would be more valuable to attack the systemic problem throughout the U.S. rather than attempting to hold a single company to a higher standard simply because of its status as a large target.

Child Labor and Work Break Violations

Internal Walmart audits have shown that minor employees at Walmart have missed required breaks, mealtimes, or worked too late into the evening. Is this a smoking gun for how cunning Walmart is at pushing its people too far? My personal experience in similar organizations has demonstrated to me that this practice is common throughout. Again, shall we hold the large organization to a higher standard? Or should we enforce the standard fairly and evenly? Remember that whole concept of justice?

Illegal Use of Undocumented Workers

Another complaint against Walmart stems from a 2003 raid of 61 Walmart stores where 250 janitors were found to be illegal immigrants (that’s 4 per store). Walmart didn’t actually hire these workers; they were hired through local contractors for janitorial work. With an average of about 2,500 actual employees (not contractors) per store, some would have us believe that Walmart should have been able to identify these 4 workers as illegal immigrants and have dealt with the issue. I wonder how many other companies check the authenticity of citizenship papers for all their contractors’ employees. Let me give you a hint, none that I’ve ever worked for.

Sending Jobs Overseas

So now Walmart is the culprit for sending jobs overseas. Those that would make this claim don’t want you to know that Walmart hasn’t sent its employees overseas though. Rather, Walmart buys many of the products it sells from overseas. This, they say, is the reason manufacturing jobs are leaving the U.S. The real reason, though, is that most Americans are rational economic beings. They want products at lower prices, and these manufacturers can make them. It doesn’t matter if these manufacturers exploit their laborers, or anything else we don’t like about them. As long as they produce a decent product at a competitive rate, American consumers want to buy their product. Economics 101 teaches us that if Walmart doesn’t deliver, some one else will. Truly, if everyone started only buying the American made products at Walmart, would the store keep buying goods from overseas? Globalization is an economic reality. There’s a reason why you don’t see "Buy American" commercials on prime time TV anymore.

Unionization

Let me start by saying that I believe unions to often serve an important purpose in labor-management relations. The issue, however, is that unions often go far beyond the scope of ensuring fair treatment of workers. The undeniable fact is that labor unions are very powerful entities. Certainly corporations have imposed many policies disliked by their employees, often driving their employees to unionize. Unions have also imposed many requirements disliked by the corporations their members serve. Unions can strike. Corporations can close up business and go elsewhere. The largest disparity comes from the often cited lack of accountability of union actions. Today, a corporation threatening violence against union workers would be dealt swift justice. However, union violence against those who cross picket lines, replacement workers, and other often has little repercussions on the union organization. So the playing field would seem to be only somewhat even.

Most of the other issues surrounding unionization are philosophical in nature, and must be decided by the individual. Should a business be able to summarily dismiss an employee they believe is bad for the business? Should an employer be permitted to dismiss an employee for no reason whatsoever? (Hint: The law in the U.S. says yes, pursuant to At-Will employment.) Should an employee have an entitlement to a second chance? Should an employee be so protected by a union that he sees no need to perform up to his capability? Should a group of employees get paid more because they have the power to shut a business down? Should an employer pay them less because they don’t have such power? Or is it enough to say that economics rules apply: if the price paid to employees for work doesn’t meet the supply of workers willing to work for that price, the employer will have to pay more anyway?

Indeed, unions often act as a labor monopoly. If one organization controls your entire supply of a needed resource, it is indeed a monopoly by any definition. Then would not a union organization controlling your entire supply of labor not constitute such a monopoly? Let us then look back to economics to tell us what such a monopoly causes.

When a monopoly occurs, prices are artificially set higher than in a true market situation. Supply is artificially restricted, requiring those who require the resource to pay more. The monopoly also will use its status to create barriers to entry for others who would offer an alternate supply. Indeed, Microsoft allegedly follows the model as a weak monopoly. Its prices are artificially higher than one might be willing to pay if there was a viable alternate operating system product. Microsoft allegedly worked with manufactures to ensure that other operating systems would not gain a foothold in new PCs. Is this not the same as tactics used by organized labor? Do they not restrict the labor supply preventing employers from hiring non-union labor? Do they not require employers to pay more than the supply of labor would otherwise be willing to accept? Do they not create barriers to the replacement of unionized labor by non-union workers (picketing, threats, violence, etc.)?

So how does all this relate to Walmart? Walmart knows that its competitive advantage is centered around providing products at low prices. To that end, costs must be maintained at their lowest possible level to keep prices at their lowest level. The largest cost for Walmart, not including cost of goods sold (COGS), is labor. As such, Walmart rightly sees low labor costs as critical to providing customers what they want: low cost goods. Artificially high labor costs imposed by unions disrupt that model. Without understands that most people are rational economic beings. Without low prices, they have little to offer. It’s no surprise that Walmart closes its doors once employees form a union and demand higher wages. We have only to look at how steel workers priced themselves out of competitiveness in the 70s and 80s to understand this.

Conclusion

As a registered Democrat, one of the last things that I want to do is defend Corporate America. However, the disinformation that I often see in the form of half-truths and studies sponsored by far left groups (the right wing groups do it too!) bother me. You’ve seen these studies…the ones from groups with names like "People for All Things Good and Decent in the World." I believe workers should be treated fairly and should be protected from exploitation. I also believe, however, that someday if I ever open a little hobby shop or candy store, I should be free to choose who I’m going to pay my hard earned money to work for me. I also believe that if I ever do open up my own little shop, I should be entitled to pay a market rate for the work done in my shop, rather than an artificially high rate. I ask for these freedoms, because as an American, I believe freedom to be a little more important than anyone’s sense of entitlement.

[In the interest of full disclosure, I should mention that I worked as a Wal-Mart associate during the summer of 1998. – Funky]


Yahoo! Stocks
Is Wal-Mart Good For America?
Everyday Low Wages: The Price We All Pay For Wal-Mart

Comments 11

  1. Steve Nicoloso wrote:

    Oh my, I failed the melodrama test. Well then I must be wrong… 😕 This bit, James:

    People shop at Wal-Mart because they can not afford to shop elsewhere.

    is absolute bat guano. How then, praytell, did the human race get along so long (and so well) without the various Marts offering extra low prices? Well, they did so by either a) buying less of what they don’t need, or b) spending a higher fraction of their discretionary income on it. After Peak Oil, we’ll have other no choices… so we might as well get used to it.

    Cheers!

    Posted 09 Aug 2005 at 4:54 pm
  2. Lightwave wrote:

    I agree with James in concept. However, meddling with market systems has historically had much worse consequences than simply an upward spiral in prices and wages (by the way, we call this “inflation”) due to the globalized economy.

    In regard to Funky?s proposition, the fact is that an en-mass move to not buy from corporations (or to only buy from ?mom and pop? stores producing their own goods) results in fragmentation of productive systems, reducing economies of scale. This causes a chain reaction which reduces the capability of individuals to specialize in work. The end result is a return to an agrarian style of life.

    While some might like to move back to an agrarian society (which, I don?t believe will cure what ails our society), unfortunately it means an end to things like modern medicine, electricity, etc., since economies of scale are eliminated (you think prescription drugs are unaffordable now? Imagine the cost when it takes one person two months to produce a single bottle of that antibiotic you need.) It also means that the current world population is unsustainable. Food production and distribution plummets for lack of productivity. Those with the least to ?barter? with starve. Billions die. Only then is the population finally sustainable. I just don?t think I can recommend this approach in an effort to attain what a few might call utopia.

    This leads me right back to where I started; saying the rule setting for the market system is poorly done because we, the constituents of those who set the rules, have failed to hold our representatives accountable to getting the job done correctly. Walmart is not to blame, market systems are not to blame? fairly enough we only have ourselves to blame.

    Posted 09 Aug 2005 at 3:15 pm
  3. James Stephenson wrote:

    Well Walmart would just raise the prices to consumers to make up the difference in loss of profit.

    Then I open up StepMart, with no insurance, part time crappy employees, no union and just run Walmart out of business by offering much lower prices. Get their good union people at a much lower cost, already trained.

    My roommate in the Army, was a 30 year old Steel worker from Texas. When the plants in Pittsburgh closed, the long time union people moved to Texas and they had to let him go. Needless to say he was less than happy about unions.

    Some of you people need to lighten up, my goodness.

    “we’ve slowly become nothing BUT–just smiley, happy, little consumer drones, keeping the economy pumping along”, my my a little melo-dramtic are we not.

    People shop at Wal-Mart because they can not afford to shop elsewhere. Raise the prices at Wal-Mart and you have to raise the wages of people everywhere. Which raises the prices at those places of work as well. And then the system levels back out and your dollar will go exactly as far as it went before, and then people will start bitching again about how little people make.

    We could be like France, can not fire people, 35 hour work weeks and oh yes, over 10% unemployment.

    Posted 09 Aug 2005 at 1:46 pm
  4. Amy wrote:

    Thank you both for this post.
    As a former Wal-Mart employee, my biggest gripe is about off-the-clock working. I was *never* told by a manager or any other employee to work off the clock, but I was consistently bombarded by customers… while walking through the store… off the clock… and without wearing my vest or name badge. It’s “hey, just saw you up front two minutes ago” syndrome :)
    I get frustrated when I see people saying to boycott Wal-Mart because it’s such a horrible place to work. In my reality it was a great place to be while I needed to be there. True, they could probably do more to pay a living wage to their employees, but they still paid me better than my previous job at a “nice” department store.

    Posted 28 Jul 2005 at 12:41 am
  5. howard wrote:

    The initial proposition of this post is unfortunately shot out of the water when one considers the fact that there are companies, like Costco, who compensate their employees (both union and non-union alike) significantly better than Wal-Mart, and — shock of all shocks — they even manage to turn a profit, as well as reward their stockholders!

    The whole argument about responsibility to the shareholders is a red herring, especially when it comes from corporations who so obscenely over-compensate their executives, while so obscenely under-compensating their actual workers.

    How a company like Costco, which competes pretty directly with the Walton family sweatshop, can do so well while paying its workers so much better is surely a mystery of modern economic theory — or is it simply a matter of priorities?

    I’m sorry — I’ve known too many people who’ve worked in Wal-Mart stores and been threatened just for being suspected of thinking about unionization. I’ve also known a few good companies that aren’t so ridiculously belligerent and paranoid when it comes to unions and workers’ rights. I’m not buying any half-baked apologies for one of the most irresponsible large corporations on the face of the earth.

    Also, in the interest of my full disclosure, I earn significantly more as a unionized employee of the most profitable shipping company on earth — a company which runs head to head against a non-union shipping company that routinely operates on razor-thin margins, so I do tend get a little worked up when business “experts” talk about decent wages and profitability (especially long-term) being on opposite ends of the spectrum. If a company is run well enough, profits and good compensation can co-exist just fine.

    Posted 28 Jul 2005 at 4:05 am
  6. Steve Nicoloso wrote:

    When I read stuff like this, I just get in a really bad, bad mood… I draw your attention to The Catechism of the Roman Catholic Church which states:

    2423 The Church’s social teaching proposes principles for reflection; it provides criteria for judgment; it gives guidelines for action: Any system in which social relationships are determined entirely by economic factors is contrary to the nature of the human person and his acts.[202]

    2424 A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable. The disordered desire for money cannot but produce perverse effects. It is one of the causes of the many conflicts which disturb the social order.[203] A system that “subordinates the basic rights of individuals and of groups to the collective organization of production” is contrary to human dignity.[204] Every practice that reduces persons to nothing more than a means of profit enslaves man, leads to idolizing money, and contributes to the spread of atheism. “You cannot serve God and mammon.”[205]

    2425 The Church has rejected the totalitarian and atheistic ideologies associated in modem times with “communism” or “socialism.” She has likewise refused to accept, in the practice of “capitalism,” individualism and the absolute primacy of the law of the marketplace over human labor.[206] Regulating the economy solely by centralized planning perverts the basis of social bonds; regulating it solely by the law of the marketplace fails social justice, for “there are many human needs which cannot be satisfied by the market.”[207] Reasonable regulation of the marketplace and economic initiatives, in keeping with a just hierarchy of values and a view to the common good, is to be commended.

    There is NO JUSTIFICATION within Christianity (Catholic Christianity at any rate) that an employer “should be entitled to pay a market rate for the work done in my shop, rather than an artificially high rate.”

    Now, as Howard says, Walmart is probably worst than most. They are also bigger than most and thereby serve as, if nothing more, at least a poster child of ALL that is wrong with capitalism. Sure, Walmart is not all that is wrong, but their success only means that they’ll be copied. Yes, human beings are rational economic beings. THIS IS THE PROBLEM… we’ve slowly become nothing BUT–just smiley, happy, little consumer drones, keeping the economy pumping along. And yeah, they’ll buy the $0.99 eggs even tho’ it costs $2 to raise those eggs in accordance with Church teaching. And they’ll buy the $8.99 shirt even tho’ it was made in a factory that didn’t abide by Church teaching. But none of this means that these rational consumers are RIGHT to do so!

    And that thing we call “growth”? Ha! That’s really a just big fat loan from the future, where, when most of us are dead, energy will no longer be cheap, when clean water and air will no longer be available except to the most powerful, when the overdeveloped and no longer cost-effective exurban landscape, rurally located industries, and interstates will be given over to mother nature and the poor and weak who cannot afford to live anywhere more sensible, when beauty itself will be so expensive that people might very well have to kill to obtain it. Wealth can only be “created” when one’s accounting books don’t record the entire costs… and these WILL someday come due… but happily, not for us. Just our children and their children, but who gives a flying flip about them?

    Once all values get rationally reduced to a price, NO ONE can afford the things that can’t have a price. E.g., a locally owned business’s commitment to a community because they live there and plan to stay there; a locally owned business’s commitment to their employees, because they are the owners’ neighbors or their neighbors’ children; a locally owned business’s commitment to long-term sustainability because (again) they live there and don’t want a 200 acre parking lot next door any more than anyone else.

    So I say screw the little old lady with 2 shares of WMT (and simultaneously screw the Walton family about 10,000,000 times more). Shame on her AND them for trying to get income without any work. I’d like someone to tell me how this can be justified within Christian teaching. If a man will not work, neither should he eat.

    Like I said, a bad mood. Maybe we can talk about Christopher Guest films or something….

    Cheers!

    Posted 28 Jul 2005 at 5:42 am
  7. Funky Dung wrote:

    I’m glad this generated some discussion. 😉

    Posted 28 Jul 2005 at 12:44 pm
  8. Funky Dung wrote:

    “we’ve slowly become nothing BUT–just smiley, happy, little consumer drones, keeping the economy pumping along. And yeah, they’ll buy the $0.99 eggs even tho’ it costs $2 to raise those eggs in accordance with Church teaching. And they’ll buy the $8.99 shirt even tho’ it was made in a factory that didn’t abide by Church teaching. But none of this means that these rational consumers are RIGHT to do so!”

    His point, though, was that as long as Americans want cheap products more than they want justice, companies have to find cheap labor. There are two potential solutions to this. The first would be getting a lot of powerful corporations to get together to discuss these issues and ultimately decide all to pay living wages. This sounds nice, but I doubt that you’d get companies to agree to something so obviously hazardous to their bottom line. The second solution would be government intervention. Force companies to pay their employees more. Even if the majority of those in power in Washington were proponents of fair trade rather than free trade, there’d still be a major hurdle. American products would suffer even more in the global market than they already do. Increased wages mean increased cost passed on to consumers. I don’t think there are enough hippies in the world to keep American products from losing to cheaper competition.

    Do I want to see employees paid more and treated better? Of course I do. I just don’t think making an example of Wal-Mart or unionizing are viable solutions. Regarding the latter, remember, I live in a city that’s still trying to escape the hole that the loss of the steel industry made – a loss that’s very much attributable to myopic unions.

    Posted 28 Jul 2005 at 1:02 pm
  9. Lightwave wrote:

    I’d like to respond to some of these comments, but frankly, I’m too darn long-winded for it to fit in this comments window. A follow up article is already been sent in, so expect to see it very shortly.

    Posted 28 Jul 2005 at 2:51 pm
  10. Rob wrote:

    Wal Mart is a tempting target because it’s so big. If you affect it, you affect a lot of people, and smaller organizations may well fall into line.

    I also wonder about cost/benefit ratio, but then all the Terri Schiavo fans get on my case. Meanwhile, a man who has a chance at recovery may face losing medical treatment because his insurance is going to max out.

    I’m feeling a bit hopeless today, but my wife would remind me of the starfish story, so I won’t give up yet.

    Posted 28 Jul 2005 at 5:03 pm
  11. Steve Nicoloso wrote:

    Funky muses:

    There are two potential solutions to this. The first would be getting a lot of powerful corporations to get together to discuss these issues and ultimately decide all to pay living wages. This sounds nice, but I doubt that you’d get companies to agree to something so obviously hazardous to their bottom line. The second solution would be government intervention. Force companies to pay their employees more

    You left out the third option: Use what money we have as power for creating a sustainable future. As much as possible don’t buy from corporations at all. As much as possible buy locally produced goods from locally owned businesses. Be prepared to pay a little (sometimes a lot) more. In fact be prepared to pay what it ACTUALLY costs to DO sustainable business. Also be prepared to simply NOT BUY things you don’t actually need. See Wendell Berry’s 17 Sensible Steps.

    Cheers!

    Posted 28 Jul 2005 at 7:22 pm

Trackbacks & Pingbacks 2

  1. From Ales Rarus - A Rare Bird, A Strange Duck, One Funky Blog » Is Wal-Mart Really to Blame? on 20 Mar 2006 at 8:16 am

    […] A Rare Bird, A Strange Duck, One Funky Blog random thought of the moment: “The trouble about being on the side of right is that often one finds oneself in the company of such very questionable allies.” – Separate Tables (1958) Navigation « Walmart, Unions, and Un-Fair Labor Practices :: Main :: System Administrator Appreciation Day » Thursday, July 28, 2005 […]

  2. From Welcome Post-Gazette Readers! :) @ Ales Rarus on 31 Oct 2006 at 10:20 am

    […] There are some good folks who deserve to take the credit with me – perhaps even away from me. Jerry Nora writes most of the stem cells posts. As a med school student and bioethics hobbyist, he's more qualified than I to argue effectively on such topics. The posts about labor practices were written by Lightwave, a professional computer geek who has an MBA. The reflection on Humanae Vitae was written by edey, a gentle soul with a bleeding heart wrapped in brutal honesty, who was once upon a time was fiercely pro-choice. […]

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