Wal-Mart defends its low wage/low benefit personnel policy by arguing that it employs workers who are marginal to the income stream required by most American families. Only seven percent of the company’s hourly “associates” try to support a family with children on a single Wal-Mart income. The company therefore seeks out school-age youth, retirees, people with two jobs, and those willing or forced to work part-time. The managerial culture at Wal-Mart, if not the formal company personnel policy, justifies its discrimination against women workers, which now compose two-thirds of the workforce, on the grounds that they are not the main family breadwinner. Not since the rise of the textile industry early in the 19th century, when women and children composed a majority of the labor force, has the leadership of an industry central to American economic development sought a workforce that it defined as marginal to the family economy.
Wal-Mart argues that the company’s downward squeeze on prices raises the standard of living of the entire U.S. population, saving consumers upwards of $100 billion each year, perhaps as much as $600 a year at the checkout counter for the average family. A McKinsey Global Institute study concluded that retail-productivity growth, as measured by real value added per hour, tripled in the dozen years after 1987, in part due to Wal-Mart’s competitive leadership of that huge economic sector. “These savings are a lifeline for millions of middle- and lower-income families who live from payday to payday,” argues Wal-Mart CEO H. Lee Scott, “In effect, it gives them a raise every time they shop with us.”
But why this specific, management imposed trade off between productivity, wages, and prices? Henry Ford used the enormous efficiencies generated by the deployment of the first automotive assembly line to double wages, slash turnover, and sell his Model T at prices affordable even to a tenant farmer. As historian Meg Jacobs makes clear in Pocketbook Politics: Economic Citizenship in Twentieth-Century America, the quest for both high wages as well as low prices have been at the heart of America’s domestic politics throughout much of the 20th century. And when social policy tilts toward the left, as in the Progressive era, the New Deal, and on the World War II home front, workers and consumers find their interests closely aligned. They see the relationship between wages and prices as a fundamentally public, political issue and not merely a dictate of corporate management or the interplay of market forces. Thus, as late as 1960 retail wages stood at more than half those paid to autoworkers, in large part because the new unions and the New Dealers had sought to equalize wages within and across firms and industries. But by 1983, after a decade of inflationary pressures had eroded so many working class paychecks, retail wages had plunged to but one third of that earned by union workers in manufacturing, and to about 60 percent of the income enjoyed by grocery clerks in the North and West. And this is just about where retail wages remain today, despite the considerable rise in overall productivity in the discount sector.
Indeed, if one compares the internal job structure at Wal- Mart with that which union and management put in place at GM during its mid-twentieth century heyday, one finds a radical transformation of rewards, incentives and values. GM workers were often lifetime employees so factory turnover was exceedingly low: these were the best jobs around, and they were jobs that rewarded longevity. Auto industry turnover is less than eight percent a year, largely a result of normal retirements. At Wal-Mart, in contrast, employee turnover approaches 50 percent a year, which means it must be even higher for those hired at an entry-level wage. Turnover at K- Mart is somewhat lower and Costco, which provides even higher wages and benefits, reports a rate of only 24 percent.
The hours of labor, the very definition of a full workday, constitutes the other great contrast dividing America’s old industrial economy from that of its retail future. Since the passage of the Fair Labor Standards Act in 1938, most Americans have considered an eight-hour workday and a 40-hour week the nominal standard. Employers are required to pay time and a half to most non-supervisory workers when their hours exceed 40 per week. But the reality of our work lives has not always conformed to this standard. Industrial managers at General Motors and other high benefit firms have frequently insisted upon a longer workweek, perhaps 48 or 56 hours, in order to meet production goals. Most workers disliked such mandatory overtime, but neither the unions nor the government could do much about it because, from the employer’s perspective, the total cost of each additional hour of work has been relatively low. General Motors and other unionized firms have never been required to pay overtime on that large slice of their labor cost that consists of health and pension “fringe benefits.” But at Wal-Mart and other low- benefit firms it is a near capital offense for store managers to allow workers to earn overtime pay. Indeed, at Wal-Mart a 32-hour workweek is considered “full time” employment. This gives managers great flexibility and power, enabling them to parcel out the extra hours to fill in the schedule, reward favored employees, and gear up for the holiday rush. But the social consequences of this policy are profound: Unlike General Motors, Wal-Mart is not afraid to hire thousands of new workers each year, but employee attachment to their new job is low, and millions of Americans find it necessary, and possible, to “moonlight” with two part time jobs.
GM and Wal-Mart have also generated extraordinarily divergent pay hierarchies. During its heyday, factory supervisors at GM—hard driving men in charge of 2,000 to 3,000 workers—took home about five times as much as an ordinary production employee. At Wal-Mart, district store managers—in charge of about the same number of workers — earn more than ten times that of the average full time hourly employee. And when one calculates the ratio of CEO compensation to that of the sales floor employees, the disparity in pay becomes even greater. In 1950 GM President Charles E. Wilson,one of the most well paid executives of his era, earned about 140 times more than an assembly line worker; while H. Lee Scott, the Wal-Mart CEO in 2003, took home at least 1,500 times that of one of his full time hourly employees.
Nelson Lichtenstein teaches U.S. Labor History at the University of California, Santa Barbara. This abridged version of the lead article in his collection Wal-Mart: The Face of Twenty-First Century
Capitalism (New Press, November 2005) appears with permission.
Responsibility for editing is ours alone.