By Robert B. Reich
November 28, 2012
We're officially into Christmas buying season -- when American consumers determine the fate of American retailers and, indirectly, the American economy.
What's often forgotten is that consumers are also workers, and if their pay doesn't keep up, they can't keep the economy going.
A half-century ago, America's largest private-sector employer was General Motors, whose full-time workers earned an average hourly wage of around $50, in today's dollars, including health and pension benefits.
Today, America's largest employer is Walmart, whose average sales associate earns $8.81 an hour. A third of Walmart's employees work less than 28 hours per week and don't qualify for benefits.
There are many reasons for the difference -- including globalization and technological changes that have shrunk employment in American manufacturing while enlarging it in sectors involving personal services, such as retail.
But one reason, closely related to this seismic shift, is the decline of labor unions in the United States. In the 1950s, more than a third of private-sector workers belonged to a union. Today fewer than 7 percent do. As a result, the typical American worker no longer has the bargaining clout to get a sizable share of corporate profits.
At the peak of its power and influence in the 1950s, the United Auto Workers could claim a significant portion of GM's earnings for its members.
Walmart's employees, by contrast, have no union to represent them. So they've had no means of getting much of the corporation's earnings.
Walmart earned $16 billion last year (it just reported a 9 percent increase in earnings in the third quarter of 2012, to $3.6 billion), much of which went to Walmart's shareholders -- including the family of its founder, Sam Walton.
The wealth of the Walton family now exceeds the wealth of the bottom 40 percent of American families combined, according to an analysis by the Economic Policy Institute.
Is this about to change? Despite decades of failed unionization attempts, Walmart workers are getting organized. Last Friday they staged protests outside at least 1,000 Walmart locations across the United States.
The action has given Walmart employees a chance to air their grievances in public -- not only lousy wages but also unsafe and unsanitary working conditions, excessive hours and sexual harassment. The result is bad publicity for the company exactly when it wants the public to think of it as Santa Claus.
What happens at Walmart will have consequences extending far beyond the company. Other big-box retailers are watching carefully. Walmart is their major competitor. Its pay scale and working conditions set the standard.
More broadly, the widening inequality reflected in the gap between the pay of Walmart workers and the returns to Walmart investors, including the Walton family, haunts the American economy.
Consumer spending is 70 percent of economic activity. As income and wealth continue to concentrate at the top, and the median wage continues to drop -- it's now 8 percent lower than it was in 2000 -- a growing portion of the American workforce lacks the purchasing power to get the economy back to speed.
Without a vibrant and growing middle class, Walmart itself won't have the customers it needs.
Most new jobs in America are in personal services like retail, with low pay and bad hours. According to the Bureau of Labor Statistics, the average full-time retail worker earns between $18,000 and $21,000 per year.
But if retail workers got a raise, would consumers have to pay higher prices to make up for it? A new study by the think tank Demos reports that raising the salary of all full-time workers at large retailers to $25,000 per year would lift more than 700,000 people out of poverty, at a cost of only a 1 percent price increase for customers.
Even retailers would benefit. According to the study, the cost of the wage increases to major retailers would be $20.8 billion -- about 1 percent of the sector's $2.17 trillion in total annual sales. But the study also estimates the increased purchasing power of lower-wage workers as a result of the pay raises would generate $4 billion to $5 billion in additional retail sales.
This seems like a good deal all around.
Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of "Aftershock: The Next Economy and America's Future." He blogs at www.robertreich.org.
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