WalMart Pays High Wages, Not Low Wages

It’s a fairly standard condemnation of the business practices of WalMart that it pays low wages to its associates, what in other companies we tend to call employees. It’s certainly true that WalMart pays low wages by the standards of, say, the computing industry, or the joys of government work. But that’s not actually how we should be measuring whether WalMart’s wages are high or low. The correct method would be, well, what would wages be in retail in the absence of WalMart? And there’s an intriguing little paper that looks at this question. Not exactly, as it’s not looking at WalMart as a specific company, rather it’s looking at the effect of big retail on wages in the retail sector. Given that WalMart is very definitely big retail we can take this paper as being a useful proxy for the effect of the firm. And the result is most interesting: With malls, franchise strips and big-box retailers increasingly dotting the landscape, there is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail. Retail jobs have spread, while manufacturing jobs have shrunk in number. In this paper, we characterize the wages that have accompanied the growth in retail. We show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when we control for worker fixed effects, suggesting that there is sorting of better workers into larger firms. Also, higher ability workers get promoted to the position of manager, which is associated with higher pay. We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores. Don’t you think that’s an interesting result? That pay at Big Box and chain retail is higher than it is in the Mom and Pop stores that they largely replace?