A small group of workers walked out at Walmart on Black Friday 2012, and the company has been for a few decades now a leading emblem of what is supposedly wrong with the modern global economy. Shouldn’t Walmart just be more generous?
Not necessarily. First, the managers of corporations are answerable to their shareholders. This is a diverse group that includes not only the very wealthy but also anyone with an IRA, 401k, or 403b. If you own a diversified portfolio of stocks through your retirement investments, it’s a safe bet that you own at least some stock in Walmart, Nike, or another company that has come under fire for its position in the labor market. If you wish to be charitable with your earnings from Walmart stock, it’s your business. It is quite another matter for a manager to indulge his or her charitable preferences with what is, at the end of the day, your money.
Second, careful economic reasoning shows us that it is very difficult to give away money in such a way as to actually benefit the people we want to help. People line up for “free” stuff, and their time is costly. Similarly, firms that hold wages and working conditions above what a very competitive market will bear might actually hurt the poorest of the poor, on net. First, such a market would experience what the philosopher Jason Brennan calls “job gentrification.” If Walmart paid $30 per hour, they would attract very productive, highly skilled workers at the expense of less-productive, low-skill workers. Second, above-market wages and working conditions will lead prospective workers to line up for these better-than-average jobs and invest in wasteful signals. The full difference between what firms are paying and the minimum that workers are willing to accept will be consumed by workers standing in line outside the factory or hustling to make connections in order to get a foot in the door. The sad irony is that the gains from trade accruing to workers are actually lower because the firm has decided to hold wages and working conditions above what the market will bear.
So what do we do about it? We can improve the lives of the least of these among us by making the market for low-skill labor more competitive on the demand side. We can accomplish this by eliminating regulations that make it expensive to hire people. It would be nice to think that we can just pass laws saying “make it so” and get higher wages and better working conditions, but people respond to incentives—even when you don’t want them to. Badly-designed interventions make workers worse off.
In an international context, wealthy western countries can improve standards of living for the world’s poor by liberalizing their immigration laws. The productivity of low-skill immigrants jumps dramatically just by crossing the border into the United States because we have freer markets than most countries. Presumably, this would also create pressure on immigrant-sending countries to improve their institutions if they don’t want a mass exodus of laborers.
When analyzing poverty, it is easy to blame people. Specifically, it is easy to blame other people. It is much more difficult to actually do something constructive about it, and a lot of policies that sound great on the service actually hurt the least of these among us. It’s time for a new approach to poverty alleviation and low wages. It’s time for more competition.