David Griesing: “Everyday low prices” hurt us all

Griesing-Medium-003Today’s guest post comes from David Griesing. A student of religion and ethics, David has been a non-profit manager, a caregiver, a corporate attorney, a teacher in a school for autistic kids, a company executive, retail clerk (of women’s shoes!), an arbitrator, and an entrepreneur. If nothing else, his peripatetic career has made him an expert on work–particularly how we can make it more productive and satisfying for ourselves and for those impacted by it. From his home base in Philadelphia, David helps parties to resolve their commercial disputes when he’s not writing and speaking about how all of us can do a better job of bringing our values into our work. He’s a regular on Twitter @worklifereward and blogs at http://www.davidgriesing.com/

David writes today about the downside of the “everyday low prices”  offered by discount retailers like Walmart, one of which is the inability of many of its workers to earn a living wage. A week or so ago, Business Week did an excellent cover story on Costco that complements David’s arguments here. Having said that, the counterargument is that Walmart’s low prices puts billions of dollars of savings into the pockets of the low and middle-income people who shop there, and even those of us who do not, since rival retailers reduce their prices to compete with Walmart.

Our expectation that we’ll always pay less for consumer products has an impact on the people in the supply chain who bring us those products—and it’s not a good one.

I’m talking about those who mine the metals in your cell phone, pick the cotton in your socks, process the rubber in your running shoes. Workers in places like Indonesia or Peru put your toaster together, stick the pins in your dress shirt so it looks good in its package, or pack the parts you’ll assemble into an IKEA bookcase. American sales clerks, stock boys and checkout girls get the final product into your hands.

To bring you “everyday low prices,” the people in these supply chains are paid as little as their labor markets will bear so that the factory owners, shippers and retailers can make a profit. With fewer dollars to go around and cutthroat competition between the on-line and bricks & mortar stores, every link in the consumer product supply chain is squeezed. This includes workers along the arc of production—including those in America.

How is our addiction to cheap stuff making the work that many of our neighbors do everyday a losing proposition—and why should we care?

EveryDayLowPricesAt one level, this is how capitalism is supposed to operate. Workers trade their labor for wages, and owners figure out how to make a profit after the labor and other costs of doing business are covered. In competitive markets, this creates a constant pressure to produce as cheaply as possible. Manufacturers flee the US for cheaper labor in Mexico or Bangladesh, and as wages rise in those places, to even poorer countries with “surplus workers” for hire.  American factories close because it costs so much less to make your shirt or toaster elsewhere.

But millions of Americans still staff the big box stores where you’ll likely buy that shirt or toaster this year. Over the years, we have grown accustomed to “the cheap foreign labor dividend” that enables us to pay less and less when we go shopping for consumer products. But there are only so many savings to be realized from cheap labor abroad.  At some point, full-time American workers in this supply chain also get squeezed, often to the point where they can no longer live on the money they earn.

There are “acceptable” and “unacceptable” efficiencies in capitalism.

For example, you can’t make shoddy merchandise because it won’t sell in most markets.  Child labor, sweatshops, safety and health risks, damage to the environment are also unacceptable (at least when it comes to making something in the U.S.). But what happens when all of the “acceptable” efficiencies have been obtained, and only “unacceptable” ones remain?

When it comes to many of our consumer products, we have already crossed that divide—and our expectations as consumers have a lot to do with it.

Wal-Mart was a revolutionary company because it mastered the art of selling products to consumers more efficiently than they had ever been sold before. As discussed in a recent Atlantic article by Jordan Weissmann, it paid its workers so little that they had no alternative but to shop at discount stores. . .  like Wal-Mart.  However, it didn’t end there. Many full-time jobs at Wal-Mart and other big box stores barely take a family of three over the federal poverty line. These retailers are simply not paying most of their workers enough to live on, what we call “a living wage.” As Weissmann wrote:

Ultimately, this all comes back to consumers. We are the ones who choose where to take our business. And for the most part, Americans have chosen cheap.

It’s hard to blame middle class families for making that decision—not a lot of people have the extra cash to make a political statement out of where they buy paper towels and diapers. But it’s led to cycle of [worker] impoverishment…

Economists have considered what it would cost to break this cycle, and it turns out that the cost to us would come pretty cheap. Weissmann cites a study by UC-Berkeley’s Center for Labor Research and Education suggesting that it would cost the average shopper only $12.49 more a year if Wal-Mart paid its workers a living wage.

So the questions remain: What’s to be done about the human cost of everyday low prices? And why should any of us care?

Most of us oppose merchants paying full-time American workers less than a living wage, but our abstract moral concerns are trumped—almost every single time—by the consumer product we want and the low price we want to pay for it. Would our behavior change if the trade offs were more explicit to us as consumers?

Imagine a sign at the entrance to the big box store that says: “Be willing to pay a little more so that the workers here can get a paycheck they can live on.

Or the checkout girl wearing a badge that says: “Your addiction to everyday low prices means I can’t support my family.”

Would realizing that the person harmed is standing in front of you be enough to get you to shop at the mom & pop store that charges more so it can pay its employees fairly?

Would coming face-to-face with the social cost of consumer economics lead you to add a few bucks to your checkout bill, like a “tip,” for the “Big Box Employee Living Wage Fund”?

At the very least, the realities of our addiction to low prices and its human costs need to become more personal as close to the point of purchase as possible.

What’s also needed is an understanding of why changing this value proposition in our consumer driven economy is important to you and the value of your work?

When some workers in your community are treated like property, it is easier for your employer to treat you that way—as an economic instead of a human resource, little more than a cog in a wheel. As more and more full time, middle class jobs are lost, it will become harder for any of us to make a living wage. Self-interest may lead us to start demanding that every single full time worker in America is making enough to live on.

It is also about community. The consumer product workforce is comprised of your family members and neighbors and people you see all the time. They don’t or can’t “move on” to better jobs, because increasingly those “better” jobs are unavailable. As an increasingly permanent part of our way of life, they are connected to you and to me, and have a face.

As we put our economy back together, there is an opportunity to rebuild our communities around the work that each and every person in it does. But communities where every worker is appropriately valued will never be possible until we confront our addiction to consumer prices that are lower than they have to be.

Comments

  1. What about this: If your business isn’t viable without subsidies (+ externalities, a kind of subsidy, + workers who can’t earn a [safe] living, another kind of subsidy), maybe you don’t really have a business.

  2. Ed Reid says:

    The concept of a “living wage” is not well understood. Existing state “living wage” laws deal only with the employee. However, the “living wage” concept also includes the employee’s dependents. (http://livingwage.mit.edu/)

    This raises a series of questions which the advocates of the “living wage” choose not to answer. For example, is the worker you agree to pay a living wage as an individual more valuable to you if he/she gets married? Is he/she more valuable if he/she has children? Does he/she stay more valuable if he/she gets divorced, but still has alimony and/or child support responsibilities? If he/she remarries, but still has alimony/child support responsibilities, is he/she even more valuable because he/she now has additional dependents?

    The living wage discussion is a distraction from the broader and more relevant question: “What value does the employee add to the transaction?” Many employees currently earning minimum wage are earning more than the value their participation adds to the transaction. It is reasonable to assume that, at some point in the future, they will be replaced by some electronic device which adds the same value at lower cost.

    • I think this a good point about living wage. It seems to me more good would be done if X dollars were taken from Wal-Mart and given through Food Stamps or EIC to the needeist than to spread out evenly to the workers. And that’s ignoring any effect on Wal-Mart’s employment decisions.

      Besides that I don’t see any reason why Wal-Mart has any obligation to pay its employers more than the wages they are willing to work for.

      • Ed Reid says:

        “X” dollars are already taken from Walmart (and any other business that makes a profit) and from you and me and our neighbors “and given through Food Stamps or EIC to the needeist…”, through a vehicle known as the federal income tax.

  3. Marc Gunther says:

    Gil and Ed, two great comments–that point us in opposite directions. Gil, your point that companies with jobs that create negative externalities — i.e., the need to be supplemented by government safety net programs like food stamps and health care – don’t really have a business makes sense on one level. But as Ed notes, the idea of a “living wage” or even a minimum wage, while appealing at first blush, can lead to unforeseen consequences.

    In the drugstores and supermarkets where I shop, cashiers are increasingly being replaced by machines. I don’t like this at all. I prefer a human interaction when I check out. But the hard reality is that those workers have to “compete” against the machines which don’t take sick days or require health benefits (unless you count maintenance and repairs). If the workers get expensive or the machines get cheaper, owners will buy more machines to replace the workers, and if they don’t, their competitors will. So a “living wage” may not be in the long term interests of those who it is designed, with all good intentions, to help.

  4. Good article. I think David has the right of it and I think that transparency of the process and its results could go a long way. For as connected as the digital age has made us, there is still an overwhelming amount of convenient ignorance to the ramifications of our choices.

    “Many employees currently earning minimum wage are earning more than the value their participation adds to the transaction.” I’m not sure if this is true, Ed. I think this is still an effect of David’s consumer expectations that have been based off of a lifetime of experiences. One could say that a person putting together a widget is getting paid more than the action is worth, but that’s only because we think the widget should be cheap.

    I think one can argue that if it would cost twice as much to build a computer in America, then maybe computers should be twice as expensive. Why is should our sense of entitlement to affordability justify someone else living in worse conditions?

    I’d go as far to say this is the same condition we see in our energy markets. The image of cheap energy (or cheap gasoline) benchmarks prices to relative perceptions of what is expensive, but what if our perception is simply flawed?

    If we had warning labels on our power bills that described how much NOx or SOx into the air, would it seem as good of a deal? If we included a little color picture of the effects of mountaintop removal on the paystub, would it still seem like saving the few cents per KWH was as essential?

    David’s last line says it all.

  5. I think this is a very powerful point in David’s post:

    “Would our behavior change if the trade offs were more explicit to us as consumers?”

    The answer is yes. But we are a long way from that type of public shaming going mainstream. Our culture celebrates a bargain, no matter what the cost.

  6. Vilifying Walmart is a meme that is way past its sell-by date. Walmart employs tens of thousands – if not hundreds of thousands – of people who would have no jobs at all, were it not for Walmart, for the uncomplicated reason that they are simply unqualified for any other type of employment. Nor would they have any place where they could afford to shop for life’s necessities.

    Not surprisingly, the UC-Berkely “study['s]” conclusion that increasing workers’ pay by 14 to 37 percent will have an impact of less than $13 on the average Walmart shopper is so surpassingly naïve that it could only have originated in Progressivism’s Ground Zero and can not withstand even a cursory peer review.

    Most obviously, it assumes that an increase of $3.21B in the cost of goods will have absolutely no effect whatsoever on sales. Do you think the customer who buys batteries once a year for $12 will gladly fork over $25 so the vastly overpaid elitists at UC-Berkely can clink their martini glasses at faculty cocktail parities in self-congratulatory smugness at this giant leap forward in worker rights?

    Or will he vote with his dollars and give his custom to a competitor who will soon be hiring the Walmart employees that it can no longer afford to employ?

  7. Ryan Draving says:

    This is a fascinating and refreshing post. In this day and age, when we are bombarded by political discourse at every turn we take, it is the pure economic cost that is most often discussed. While these points are important, they are also out of touch and cold. It is wonderful to hear someone taking the perspective of the worker that hovers around the federal poverty line, or the sweatshop laborer who assembles our toasters.

    Thank you for your empathy and a well written, well researched, eye opening post.

  8. David Griesing says:

    The girl at Walmart will be replaced by self-checkout. The “fast fashion” that’s currently sold there will no longer be made by workers in Bangladeshi deathtraps but on 3-D printers…at Walmart.

    Fulltime work in areas like marketing, customer service and bookkeeping are increasingly being broken off into part-time, piece-meal engagements performed in home offices. Adjunct professors with neither job security nor benefits are carrying much of the teaching load in higher education, at least until they can be “economically” replaced by on-line lecturers.

    There’s no question that we are caught up in seemingly inevitable economic forces, but we don’t have to be dominated by the drive for efficiency and the lowest possible cost.

    Work is ennobling. The more of it that is lost or downgraded, the more today’s workers are marginalized (“lucky to have any kind of job”) or written off entirely, the less cohesive and productive our communities become—whether we define “community” in local or in global terms.

    In free societies with autonomous individuals, work can’t just be fit for slaves who will trade their labor for any kind of job or for machines.

    • Ed Reid says:

      Mr. Griesing,

      The “slaves” you refer to are typically those with very limited skills. Many lack skills because they chose to focus on activities other than education or training in their youth. Others enslaved themselves to drugs and alcohol, which obliterated any skills they might otherwise have possessed. They now find themselves in competition with others with very limited skills who are in the US illegally and are willing to work for very low wages, because those wages are still greater than they would have been in their countries of origin.

      Some of those “slaves” are also young people with no experience; or, worse, with commercially useless college degrees, huge student loan balances and no experience. Some of those commercially useless college degrees actually prepare the perpetually offended and dissatisfied to be more professionally offended and dissatisfied, which arguably adds nothing to their employability.

      Fortunately, we remain a relatively free society, though the current government safety net (hammock) has rendered many of our citizens less than autonomous. Government appears to be willing to continue and expand this dependency.

      There are industries in the US, including the gas and electric utility industries, which have a continuing need for skilled employees at all levels throughout the organization; and, are willing to provide both classroom training and OJT to develop these skills.

  9. David Griesing says:

    Ed. I wish more people engaged on this issue as you have—wherever they come out, so thanks.

    Two quick points. When people choose to work full-time—to better themselves & be productive—they should be able to “live on their wages” where they live. A “living wage” is a path from an unproductive to a productive life.

    Full time work, of any kind, is harder to find today. Technology & the drive for low cost efficiencies will only eliminate more of it. That gives us an opportunity to think about the kinds of communities we want to live in, including how many people in them will have work to support themselves when they want it.

  10. Thanks for finally writing about >David Griesing: “Everyday low prices” hurt us all <Loved it!

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