Is Wal-Mart Costing Us Billions?

What a fascinating and rich topic Wal-Mart (NYSE: WMT  ) is. Love it or hate it, it rarely bores us. I myself have written a few articles on the company, such as when I questioned whether the firm was a force for good or evil and heard from many impassioned readers in response, and when I suggested some new business lines for the company. Other Fool writers have also chimed in:

I recently read some new perspectives on the firm, though, and thought I'd offer them up as food for thought and/or discussion. (Jump into the fray on our Wal-Mart discussion board.)

First up, at Slate.com, Timothy Noah presented an interesting take on a recent speech by CEO H. Lee Scott, Jr. He explained that while Scott seemed to be defending the firm's record on how it treats its employees, Scott may have been really trying to quietly reassure investors that they're not being treated that well -- that pay and benefits remain at relatively low levels. Cynical? You bet. But some compelling data backs Noah up. For example, Scott says that "Wal-Mart's average wage is around $10 an hour, nearly double the federal minimum wage." But that average is skewed somewhat by the steep salaries of those at the top. Scott's own $15 million-plus compensation package, for example, will only bring up the average. The median (or middle) wage would have been a more telling figure.

Scott also explained that "our wages are competitive with comparable retailers in each of the more than 3,500 communities we serve." Noah countered that although this may be true, Wal-Mart has likely driven down the pay rates in such communities, as competitors try to compete.

Meanwhile, in The New York Review of Books, Simon Head reviewed a bunch of books related to Wal-Mart. His article was long and full of too many points to cover here, but these two points, among others, jumped out at me:

  • "The average pay of a sales clerk at Wal-Mart was $8.50 an hour, or about $14,000 a year, $1,000 below the government's definition of the poverty level for a family of three." This supports Noah's claim.

  • Head cites a February 2004 report by the Democratic staff of the House Education and Workforce Committee. The report "assesses the costs to US taxpayers of employees who are so badly paid that they qualify for government assistance even under the less than generous rules of the federal welfare system. For a two-hundred-employee Wal-Mart store, the government is spending $108,000 a year for children's health care; $125,000 a year in tax credits and deductions for low-income families; and $42,000 a year in housing assistance. The report estimates that a two-hundred-employee Wal-Mart store costs federal taxpayers $420,000 a year, or about $2,103 per Wal-Mart employee. That translates into a total annual welfare bill of $2.5 billion for Wal-Mart's 1.2 million U.S. employees." He added that state governments are burdened by Wal-Marts, too, with California spending more than $20 million on health care for Wal-Mart employees.

So is Wal-Mart behaving criminally? Unethically? Well, perhaps not. In our capitalistic society, where such a firm has a responsibility to shareholders, is it so wrong to try to maximize profits, at any (legal) cost? If we were to punish Wal-Mart, would we then have to go after the many other firms with less-than-ideal practices? I'm afraid that I see both sides of this issue. On the one hand, I wish that the news from Wal-Mart weren't as troubling as it often is. On the other hand, with Wal-Mart's being a successful American business (in which I'm invested) that delivers low prices to many consumers, I wish it well.

Share your thoughts on our Wal-Mart discussion board, where you'll find other impassioned opinions.

LongtimeFoolcontributorSelena Maranjianowns shares of Wal-Mart.


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