A Wal-Mart Primer

The uproar that has broken out over Wal-Mart in Chicago where the aldermen, in effect, set a minimum wage for Wal-Mart employees of $13 an hour come 2010 — is being read by some pundits as a sign that Americans are clamoring for an increase in the federal minimum wage. Before they get a little too carried away, here's a syllabus for Wal-Martonomics 101, because Wal-Mart is actually a boon for lower income Americans, and not just the ones who don the blue vest of a Wal-Mart employee.

In a paper entitled "Wal-Mart: A Progressive Success Story," a former economic adviser to the Kerry campaign, Jason Furman, cites what he describes as "plausible estimates" of Wal-Mart's benefits that show the retailer saving Americans $263 billion in 2004. That benefit helps lower-income people the most. Shopping at Wal-Mart yields grocery-bill savings equivalent to a 6.5% raise for families in the bottom income quintile.

Even Target, Wal-Mart's nearest competitor, doesn't serve lower-income customers to the same extent Wal-Mart does. Target's customers boast an average family income of $50,000, compared to $35,000 for Wal-Mart shoppers. Although Wal-Mart's detractors point to Costco as a role model, since the discount club offers starting salaries as high as $10, there's little comparison. Costco caters to wealthier shoppers — average annual family income of $74,000 — and deals in discounted higher-end, higher-margin products. Those margins allow Costco to pay more to attract the more experienced sales force its well-heeled customers expect.

Wal-Mart uses its purchasing power to slice additional pennies off prices of basic, low-margin merchandise while offering employment to less experienced workers. Not that this assuages Wal-Mart's critics. They point to the number of Wal-Mart workers receiving Medicaid assistance as evidence that Wal-Mart benefits from some sort of "corporate welfare." As Mr. Furman notes, that's an illogical argument.The best way for Wal-Mart to pay its "fair share" would be to start firing workers and folding their former salaries into corporate profits that would be taxed at a higher rate than individual incomes. As it is, Wal-Mart is one of the few large discount retailers to make health coverage available to most of its workers.

Wal-Mart's decision to constrain new growth around Chicago to the suburbs in order to protect its employees and customers from the impact of the new law is a sign that, rather than leading to better wages, these laws end up leading to no wages, especially in the low-margin businesses that benefit the poor the most. That's a point to remember both here in New York, which has passed its own anti-Wal-Mart law, and nationally, as Democrats in Washington keep agitating for a higher minimum wage.