Economy & Business

Why Walmart Is Reducing Worker Hours, After Raising the Minimum Wage — and Other Lessons in Reality

(Gilles Mingasson/Getty)
In economic policy, good outcomes matter more than good intentions.

News item: There is a new cholesterol-control drug on the market, Repatha, which is enormously beneficial to people who suffer serious side effects from the statins commonly used to control cholesterol or who derive no benefit from statins. Some 17 million Britons are potential beneficiaries of the drug, but they will not be able to use it, because the United Kingdom’s version of Sarah Palin’s death panel — which bears the pleasingly Orwellian name NICE, the National Institute for Health and Care Excellence — says it is too expensive. The United Kingdom’s single-payer health-care system is effectively a monopoly, and not an especially effective one: Cardiovascular-disease mortality rates in the United Kingdom are nearly 40 percent higher than in the United States. That’s not nice. And it isn’t what was supposed to happen.

News item: Between raising its in-house minimum wage to $9 an hour and increasing its spending on training, Walmart took on an extra $1 billion in expenses and subsequently failed to meet its earnings expectations. As the back-to-school rush gives way to the buildup to Christmas, Walmart employees around the country are seeing their hours trimmed as the company tries to recoup some of the losses it imposed on itself. Employees say they are being sent home early from their shifts or told to take extra-long unpaid lunch breaks, and they say that individual stores have been ordered to cuts hundreds or even thousands of man-hours. That’s not what was supposed to happen.

RELATED: The Insidious Political Power of Minimum-Wage Laws

News item: “An unprecedented number of Californians left for other states during the last decade, according to new tax-return data from the Internal Revenue Service,” the Sacramento Bee reports. “About 5 million Californians left between 2004 and 2013. Roughly 3.9 million people came here from other states during that period, for a net population loss of more than 1 million people.” A quarter of that net loss was to Texas, where a state income-tax rate of 0.00 percent and low cost of housing stand in contrast with California. That’s not what was supposed to happen.

The news repeats itself until the bits that lodge in our brains like splinters become history, which also repeats itself. But neither the repetitious news nor repetitious history endures quite so immovably as our gift for shielding our brains against learning from either of them.

Politicians tell us what a policy is supposed to do, what it is intended to do, and they ask to be judged by their intentions. The so-called Affordable Care Act, we were assured, was intended to make health insurance a better value and to make health-care institutions give their customers better service at better prices. Never mind the unspoken premise that is the law’s foundation — “We can radically increase demand for health-care services while reducing costs and improving quality because politicians are magic!” — and its inescapable contradictions. “We meant well,” they say, and that is supposed to be enough.

It isn’t.

#share#It falls largely to persnickety, unpleasant eat-your-spinach types, and to certain happy souls blessedly liberated from the romance of politics by events and experience, to document that what is supposed to happen and what happens are not the same thing. Britons and Canadians and Americans can go on all they like about their “right” to health care, but calling something a right does not make it any less scarce (indeed, it is absolutely meaningless to proclaim a “right” to any scarce good), and whether you choose an anything-goes free market or an Anglo-Soviet single-payer monopoly model, there is going to be rationing, normally through the instrument of price. The only question is whether you get to make that decision for yourself or whether an Orwellian NICE guy makes it for you. You can raise wages at Walmart in the naïve expectation that there will be no consequences — in much the same way that all manner of bad decisions begin with the exhortation, “Here, hold my beer.” But there will be consequences. You can loot California until the only people comfortable living there are too rich to care or too poor to care, but the people between those limits have cars, and they know where the local U-Haul office is.  

RELATED: What’s Happening in China Is Happening Here

In the social sciences, the term of art for these developments is “unintended consequences.” Some unintended consequences are unforeseeable, but many are not. They are at least partly foreseeable, even if unintended, and our good intentions do not entitle us to blind ourselves to reality. Demand curves slope downward: When you raise the price of something — a ton of coal, an hour of labor — then the quantity demanded will be lower than it would have been at a lower price. The occasional intellectually honest progressive (an increasingly rare species, unhappily) will admit this, and will frankly accept that certain trade-offs, such as extending the power of labor unions or regulators or other political allies, are worth the price extracted, in this case the misery and privation of poor people denied work and a chance at self-sufficiency. Every schemer fancies himself a chess grandmaster, and if you are wondering which of the chessmen you are in his grand conception of the universe, count on it being one of the little round-headed ones in the front row.

When you raise the price of something then the quantity demanded will be lower than it would have been at a lower price.

That we can be reasonably sure that there will be unintended consequences does not mean that we know what they will be; these things are unpredictable by nature. Walmart might attempt to recoup some of its higher labor costs through reduced man-hours of labor, but it might as easily seek to shift costs onto vendors and suppliers, especially smaller firms that depend on Walmart for much or most of their distribution. (It is less likely that Walmart will attempt to pass on costs to customers through higher prices; lower prices are fundamental to its business model. The same is broadly true of fast-food companies.) Those firms will, in turn, try to shift costs to their own vendors, suppliers, customers, employees, etc. Taking a checkout clerk in Fontana, Kan., from $7.25 an hour to $9 an hour might, through roundabout cost-shifting, reduce the income of a logistics specialist in Fontana, Calif., or that of a hotelier in Fontana, Switzerland. What you can be sure of is that the experimental standard — ceteris paribus — will not apply. The world will not sit still while you adjust your favorite variable.

RELATED: Two Cheers for Ignorance: Small Minds, Big Problems

Some outcomes are positively perverse. In the 1960s, the federal and state governments began imposing more demanding liability standards on businesses in the belief that if a firm faces greater liability, then it will be more responsible when it comes to risky activities. The result wasn’t more corporate responsibility, but more widely dispersed corporate responsibility, as the economists Al H. Ringleb and Steven N. Wiggins showed. Instead of higher corporate safety standards, there was a proliferation of small corporations, the number of which, they calculated, was about 20 percent higher than it would have been with different liability rules. Why? Because businesses outsourced high-risk tasks to small, specialized firms with relatively little in the way of assets, meaning that they could simply declare bankruptcy and liquidate when faced with a large judgment.

We should not be fooled by simplistic predictions that happen to coincide with our policy preferences.

That trend was cited when oil shippers objected to the imposition of much higher liability standards — unlimited liability, in some cases — on the matter of oil spills in the wake of the Exxon Valdez disaster. But the higher liability standards were passed, and the Obama administration recently raised them. The oil companies said that the new standards would encourage reliance upon small, one-ship operators, rust-bucket tankers operated by substandard crews willing to gamble their relatively meager assets in a high-liability environment. In reality, something like the opposite happened, with oil companies slightly decreasing their reliance on independent shippers. That’s just another example of the fact that the interaction between politics and economics is not predictable, even when you have the better end of the argument. We should not be fooled by simplistic predictions that happen to coincide with our policy preferences.

RELATED: Why Should Washington Control Our Buying and Selling?

When Paul Krugman welcomed the inflation of a housing bubble to offset a collapsing stock-market bubble in 2002, he didn’t understand that he was urging a policy that eventually would kneecap the world’s economy. But he’s only a Nobel laureate in economics and so cannot be expected to think very much about the big picture. The rest of us, though, have to ask ourselves: How much economic chaos are we willing to accept in exchange for the small probability that we might get what we want out of economic policy? If your answer is “Not much,” then what you want is stable rules and as little policy uncertainty and regime uncertainty as you can achieve. But that means more or less swallowing something close to the whole of free-market economics like a goldfish and leaving very little room for the politicians to engage in policy entrepreneurship. It is easy to understand why politicians oppose that sort of thing.

But why ordinary functioning adults with a passing understanding of how the world works and without brain damage oppose it — and they do — is a mystery.

 — Kevin D. Williamson is National Reviews roving correspondent.


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