Time for a wage rise, says US giant

October 29, 2005

Low pay rates mean Wal-Mart's customers can't afford to shop, writes Mark Coultan.

The chief executive of Wal-Mart, Lee Scott, says images of the poor of New Orleans stuck on rooftops and balconies caused him to rethink the way his company, the largest retailer in the world, does business.

Wal-Mart is legendary for squeezing every last cent out of its business. It is notorious for its labour practices, particularly its dislike of unions. So it was surprising to hear its chief executive announce that it would like to see the minimum wage in the United States increased - those people on minimum wages are also Wal-Mart customers.

Scott said: "The US minimum wage of $US5.15 ($6.80) an hour has not been raised in nearly a decade and we believe it is out of date with the times.

"We can see firsthand at Wal-Mart how many of our customers are struggling to get by. Our customers simply don't have the money to buy basic necessities between pay cheques.


The minimum wage in the US is set by Congress and thus subject to the whims of politics.

The US Government defines poverty as a family with one adult and three children living on less than $US19,223, the equivalent of $US9.24 an hour. On these figures, 12.5 per cent of the population was living in poverty in 2003.

Wal-Mart faces constant criticism about its labour practices, but the company says it pays above the minimum wage. Not much above. When David Shipler was researching The Working Poor: Invisible in America he went to a Wal-Mart store in New Hampshire which paid $US6.25 an hour and up, with an extra dollar for working at night and another 25 cents for working at the cash register.

A report by the Economic Policy Institute, The State of Working America 2004-05, found that not only did unionised workers earn higher wages, they were 28.2 per cent more likely to be covered by employer-provided health insurance, a critical employee benefit in the US.

Shipler says unions have all but disappeared from the private sector. While one-third of government workers belong, less than 8 per cent of private-sector employees do. Companies have been declaring bankruptcy then voiding union agreements, forcing big wage and benefits cuts.

The US is going through the painful task of restructuring its economy, just as Australia did 15 years ago. One difference is the large pool of unskilled labour provided by the millions of illegal workers. Shipler says these people are most vulnerable. They lack bargaining power, often face language difficulties and sometimes don't know their legal rights.

In 2002, income per head in the United States was greater than in any other developed economy, but it also had the greatest gap between rich and poor. The Economic Policy Institute says: "Inequality has been and continues to be a mainstay of the US economic model."

Proponents of the American model argue that it gives jobs to people who would otherwise be unemployed, and produces a more dynamic economy. They argue that people move easily up the income scale.

Congressional Budget Office economists Ralph Smith and Bruce Vavrichek found that 63 per cent of minimum-wage workers increased their wage within a year. Professor James Long of Auburn University found that the average wage increase within a year was 30.6 per cent.

But the Economic Policy Institute found that the percentage of people who were "always poor" was 9.5 per cent, the highest for any OECD country.
