Friday, January 13, 2006
Maryland's war against Wal-Mart's employees
I carry no brief for Wal-Mart -- I don't own its stock, I will always go to Target given the choice, and I am not unmindful of the impact that it has had on small towns across America (pro and con) -- but there are several virtually inevitable consequences of this legislation that will not work out well for Maryland's workers. When they unfold, there will be nobody to blame but the Democrats and "labor and liberal groups" of Maryland. Since, according to the Times, the Maryland law is considered to be an important precedent that "labor and liberal groups" hope to enact in other states, expect these consequences to compound with the reproduction of the Maryland law elsewhere.
First, this is a significant incremental tax on the wages Wal-Mart pays. What happens when you tax something? You get less of it. Wal-Mart has a new and powerful incentive to keep wages down, because it will pay this new tax on any wage increase in the state. What's the best way to keep wages down? Find ways to do without the employee at all.
Second, by increasing the payroll tax on Wal-Mart, Maryland has increased the rate of return (and therefore lowered the investment hurdle) on strategies to shift labor expenses to employers with, er, fewer than 10,000 employees in the state. Who might these employers be? Wal-Mart's vendors, meathead (meathead being a generic term to describe the Maryland legislators who voted for this law). The Wal-Mart dream is to put little RF tags into every product. That way, people can just wander around filling up their cart, and when they leave they walk under a scanner that dings their credit or debit card. You get the vendors to stock the shelves, and then you fire all the employees except for a couple of security guards. Wal-Mart will have reached its apotheosis as a logistics system. The day is coming, but the speed with which it comes depends on two things, really: the costs of RF tags, and the costs of labor. If the first goes down enough and the second goes up enough, it will be more lucrative for Wal-Mart to get to the future faster.
Third, this tax amounts to a new subsidy to the health care system, and reduces the incentive for the state's largest employer to control health benefit costs (at least up to 8% of payroll). This will have the tendency to push up health care costs throughout the system -- why should hospitals and doctors cut their fees if Wal-Mart's benefits administrator is no longer motivated to beat up on them? Without Wal-Mart's bargaining power, smaller employers are likely to face at least some incremental cost-push from providers.
If I were an economist, I could probably think of other problems with this law. Unfortunately, I am a mere corporate tool, armed with nothing but common sense.
UPDATE: Donald Luskin has more, including particularly on the implications for investors and labor unions.
18 Comments:
By 
Cassandra, at
Fri Jan 13, 08:46:00 AM:
Welcome to my home state... land of bedwetting socialists.
The inevitable weeping, wailing and gnashing of teeth when WallyWorlds all over Maryland close up shop and move out will be funny, except for all the Marylanders who end up unemployed as a result.
Hoist, meet Petard.
By Cassandra, at
Fri Jan 13, 08:52:00 AM:
As another aside... out here in Fredneck, we recently tried to get TraderJoes to come out here.
They said "Not just NO but Hell, No". You're not Big Enough".
What do these morons think will happen when they increase the effective cost of opening another Wally World?
Yes, small business doesn't like WallyWorld (and it'll be a cold day in hell before you catch me there) but it's a great boon to employment. Military towns love WalMart - they are one of the few places who will actually *hire* military (especially enlisted) wives. We can't get anyone else to hire us.
Just a thought.
By TigerHawk, at
Fri Jan 13, 09:00:00 AM:
Hmmm. What do employers have against military wives? Apart from the fact that they might move at the dropping of a hat, which would be annoying, I would think they would be good employees. I would think they would be more likely than the average wage slave to execute on a friggin' instruction without either screwing up or thinking too deeply about its implications for their personal dignity.
By Charlottesvillain, at
Fri Jan 13, 09:10:00 AM:
I can think of few clearer real life examples of the "looters" Ayn Rand describes in Atlas Shrugged. And the results of their actions are ulitmately likely to be the same.
By Cardinalpark, at
Fri Jan 13, 09:32:00 AM:
For what it's worth, I'm also from the great state of Md (remember my Colts post -- Owings Mills). Anyway, it owuld be amusing if Wmart just shut it down and screwed Maryland by leaving. They can live without it, and it's not a bad way to signal other states who would prefer to have WMart not to mess around with stupid, discriminatory fiscal confiscation. WMart brings great value primarily to lower and middle income constituencies. They do so by bringing the buying power of that constituency to bear against branded manufacturers of products which everybody needs, poor and rich. Better off folks don't need WMart. But normal folks really get a big benefit.
This explains in part why politicians are often lawyers and rarely businesspeople, and vice versa.
By Cassandra, at
Fri Jan 13, 09:48:00 AM:
We move a lot and we have no local references. People like to hire people they know on the word of people they know.
No one likes to be second-guessed. It's always tougher to get hired when you move around a lot. It's possible (because I've done it) but you really have to network and I hate networking.
By Cassandra, at
Fri Jan 13, 09:48:00 AM:
Try coming up with 3 local references when you've only been in town 2 weeks.
By 
, at
Fri Jan 13, 10:18:00 AM:
Outstanding.
One thing about Wal-Mart that I do like is that they never really will put the little guys out of business. Even they can only grow so big. They can't be all things to all people. They don't have a comprehensive fabric shop, nor healthfood section.
However, their marketing research reports must contain items most frequently purchased which is how they stock their shelves and give people the impression that they have everything anyone could ever need.
And I do shop there once in a while.
But for things that improve my quality of life, Wal-Mart isn't on the horizon.
I am confused here...I thought all businesses paid workmen's comp ANYWAY.
By , at
Fri Jan 13, 11:02:00 AM:
I too live in the "land of pleasant living." I've been here since leaving the "promised land" in 1982. My county, Harford, home of a VRWC, has two Walmart stores. There are 19 within 35 miles of my work zip code. The law only applies to those firms with more than 10,000 employees in the state of Maryland. I wonder how many stores need to be shuttered to get under 10,000.
Walmart is not a place where I routinely shop. Neither is Home Depot or Lowes for that matter. I use one of the three local hardware stores that also sell ammunition. That said, Walmart, Home Depot, Lowes, all employ many more Harford Countians than the shops that I frequent. I'd rather not see those people lose their jobs.
One thing that is not said about this law is that it was pushed for hard by Giant Foods (Royal Ahold) and Safeway. Those two unionized shops simply do not want Walmart pushing into the retail food business here.
By , at
Fri Jan 13, 11:17:00 AM:
"There are 19 within 35 miles of my work zip code."
How many stores would they
actually have to close to
get under the 10,000 employee figure?
If "employee" covers both
full time and part time -
shifting minimum hours for
part timers would also decrease the 10,000.
So a student who can only
work on weekends, say 16hrs,
would be eliminated for those still part timers that
agreed to work 25 hours.
Lots of ways to show these
morons why they should have taken Econ from someone other than Paul Krugman.
By , at
Fri Jan 13, 11:39:00 AM:
The Wal-Mart dream is to put little RF tags into every product. That way, people can just wander around filling up their cart, and when they leave they walk under a scanner that dings their credit or debit card. You get the vendors to stock the shelves, and then you fire all the employees except for a couple of security guards. Wal-Mart will have reached its apotheosis as a logistics system. The day is coming, but the speed with which it comes depends on two things, really: the costs of RF tags, and the costs of labor. If the first goes down enough and the second goes up enough, it will be more lucrative for Wal-Mart to get to the future faster.
Not to mention that it would get them closer to (if not actually under) the 10,000-employee minumum whereby this law would no longer apply to them anyway. Can you say "Pyrrhic victory," boys and girls? The legislators of Maryland evidently can't.
By Bret, at
Fri Jan 13, 12:23:00 PM:
So why wouldn't Walmart just close up enough stores in Maryland to get under the 10,000 employee limit? Or at least temporarily close them until tigerhawk's RF tag concept becomes inexpensive enough? That's what I would do if I was them. It would send a clear message to other states who were thinking of the same thing.
By TigerHawk, at
Fri Jan 13, 12:43:00 PM:
There's a lot of cost associated with closing a business, including unused real estate (whether owned or leased), lawsuits, inventory to be written off, etc. The incremental effect of this legislation is purely at the margin. That does not mean it isn't significant to future investment decisions that Wal-Mart might make, which is the point of my post, but I doubt that the incremental cost is enough to warrant giving up the market in Maryland.
There is also a hazard in cutting in running -- it would dramatically embolden the many forces abroad in the land who would like to drive Wal-Mart out of their states. If it runs from Maryland, rather than grinding down, it will hurt itself more than its opponents. That's why I think it will simply engaged in some incrementalism -- it will cut its workforce by 2%, shave wage increases by another 1%, etc., until it gets itself back in the same position that it had been in. But this will all hurt Wal-Mart employees (present and future), and it will hasten the day that Wal-Mart replaces them en masse.
By , at
Fri Jan 13, 01:02:00 PM:
I forgot to add that this is a gubernatorial election year in Maryland. Republican Robert L. Ehrlich (Princeton '79) is running for re-election. The Maryland General Assembly, vastly controlled by the opposite party, is working hard to make him look weak and bad.
The State Senate voted yesterday to override six other vetoes. The House of Delegates voted to override Ehrlich's veto of a $1.00 increase in the state minimum wage. Each chamber will now vote on the other's bills. The Maryland General Assembly started its annual 90 day session this week.
By Gordon Smith, at
Fri Jan 13, 02:43:00 PM:
Poor, poor WalMart...
Gosh...the most profitable company in America is being asked to step up its labor practices. It's unconscionable, isn't it.
And think of all those poor people who would like to work at the WalMart and will now have to commit hari-kari at the Ace Hardware instead.
Corporate entities are treated as individuals until they start to hurt communities, then they're treated as untouchable megaliths. Until someone has a better plan to help deal with the health care crisis in this country, I say keep the taxes on WalMart coming.
If WalMart chooses to mechanize futher, it won't be because of Maryland. It will be because they don't care about their employess and they don't care about the communities in which they do business.
We're fighting one here in Asheville, as there is a nearby town whose businesses will die when WalMart pushes them out. 56 families are being moved to make room for it. We already have two SuperWalMarts in this county of 250,000.
Can we please start protecting our citizens instead of focusing all of our energy on protecting megacorporate interests? Monday is Martin Luther King, Jr. Day in this country. I wonder whose side he would have been on?
Have a dream?
By , at
Fri Jan 13, 07:43:00 PM:
Wal-Mart is the most profitable company in America?
By , at
Fri Jan 13, 10:57:00 PM:
Wal-Mart is one of the least profitable companies in America, measured as a percentage of gross sales.
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