COMBINING their “income inequality” obsession with business bashing, some liberals are blaming supposed corporate greed for the financial challenges of the poor. Such theories are only plausible in the abstract. Under scrutiny, they fall apart.
A recent video produced by Slate, a liberal website, argues that Walmart could raise wages and ultimately save taxpayer money because fewer of its workers would qualify for food stamps. Currently, Slate says, cashiers are paid an average wage of $8.81 per hour. To raise that sum to $13.63, Slate argues, Walmart could raise prices 1.4 percent. A 68-cent box of macaroni and cheese would instead cost 69 cents. Slate claims this would keep many Walmart employees off food stamps.
This sounds like a win-win. But Robert VerBruggen, editor of RealClearPolicy, notes the plan has some major flaws. For one thing, it requires some poor people to pay more for goods so other equally poor people can get a raise. This isn’t Robin Hood robbing the rich to give to the poor. It’s robbing the poor to give to the poor.
Research from the University of California at Berkeley has concluded that if Walmart raised prices to fund a higher minimum wage, 28.1 percent of the price increase would be borne by consumers in families with incomes below 200 percent of the federal poverty level. Many other Walmart customers facing higher prices are thoroughly middle-income families who aren’t exactly rolling in dough.
“Transferring $100 from Walmart customers to the lowest-paid Walmart employees is like taking $28 from some poor people and giving it to other poor people, taking $59 from some nonpoor people and giving it to other nonpoor people, and taking $13 from nonpoor people and giving it to poor people,” VerBruggen writes.
Even if that doesn’t bother you, the plan has other problems. For one thing, about half of that cashier’s raise would be immediately lost thanks to the perverse incentives of welfare.
Jeffrey Dorman, a Forbes contributor, has noted that those on welfare could face a huge effective tax rate if their minimum wage was increased to $10.10 per hour. Dorman wrote that “a hypothetical single mom with one kid would see more than half of the proposed minimum wage increase offset by a reduction in benefits from the federal government and increased taxes.” The hypothetical mother would face a reduction in her federal Earned Income Tax Credit and in food stamp support. She would now have to pay employment taxes on her increased earnings.
“Essentially, these workers face the equivalent of a 50 percent or higher tax rate,” Dorman wrote. Critics have long noted such features are one reason why welfare programs can discourage work and upward mobility.
The Slate plan also ignores the harsh realities of market competition. Walmart and other large retailers operate in a low-margin environment. A 1.4 percent price increase might not sound like a lot, but it could easily lead customers to make purchases at places that aren’t (yet) targets of a liberal witch hunt. That in turn could lead to layoffs at Walmart.
In the abstract realm of liberal economics, businesses can simply raise prices at will and everyone benefits; no one gets seriously hurt. But reality remains stubbornly resistant to liberal nostrums. Those pushing a minimum wage hike in Oklahoma City should keep this lesson in mind.