Its wages and health benefits are so dismal that in several states Wal-Mart displaces worker healthcare costs onto tax-supported Medicaid for the poor. Wal-Mart batters down wages not just in the United States, but in Third World countries, where it plays foreign suppliers against one another to demand the lowest possible wholesale price (and wage).
The New York Times reported recently that Democratic politicians from Senator Joseph Lieberman to his winning opponent in the Connecticut primary, Ned Lamont, are making Wal-Mart their nemesis. This focus is certainly helpful in spotlighting one mega-employer that is symbol and substance of an America where the middle-class dream is vanishing, but the problems go far beyond Wal-Mart.
The America of a generation ago had multiple institutions for enabling worker incomes to rise with their rising productivity. More industries were regulated. The federal minimum wage was equal to about half the average wage; today, it is below one - third. The federal government actually enforced workers' right to organize a union. Nearly half of US workers were covered by decent, federally guaranteed pensions, instead of funny-money worker-savings plans. Wall Street was more tightly regulated, and corporate executives were not able to grab such an outlandish share of the total pie. Taxation was progressive, and ordinary workers paid much lower rates. We did not trade with countries that had something close to slave labor, like the Chinese factory system.
Since the mid-1970s, under three Republican presidents and too- often-feeble Democratic ones, this social compact was blown up. Since the early 1970s, real incomes for the top 1 percent have doubled, while earnings for most Americans have stagnated. Middle-class Americans have stayed even only thanks to a second wage-earner -- an average increase of more than 500 annual work hours per household. This is a disguised loss in living standards, cutting into leisure and parenting time, and incurring child-care and transportation costs.
Politicians may legislate special laws, requiring higher minimum wages for mega-stores (as Chicago has done) or requiring them to contribute to health coverage (as Maryland has attempted), but until our political system addresses the larger problems, even reforming Wal-Mart is a drop in the bucket.
The system is now essentially rigged so that workers' productivity can rise, but workers' incomes can't. A study prepared last month for Democrats on the House Financial Services Committee and released by Representative Barney Frank of Newton showed that since 2002 annual productivity growth has averaged more than 3 percent, while real wage increases have been under half of 1 percent. Corporate profits, meanwhile, have risen from 8.5 percent to 14.4 percent of national income.
Whenever wages show signs of rising with productivity, the Federal Reserve whacks them back down. It shows no such concern about corporate profits being excessive. Until this month, when the Federal Reserve announced a ``pause" in rate hikes, our central bank had hiked interest rates 17 times since June 2004, citing fears of inflation, mainly in rising labor costs. But note the sleight of hand. If workers' wages are lagging well behind workers' increased productivity, then rising wages are not a source of inflation. The rising ``total labor costs" include pensions and health insurance. Doesn't that benefit workers? In fact, the increase in recent employer contributions to pension plans is mainly to make up for the corporate looting of plans during the 1990s.
In the stock market euphoria of that decade, corporations used outlandish assumptions about future stock market returns to reduce annual contributions they were supposed to make to pension funds. The replenishing of fund shortfalls in recent years is not a source of true worker compensation -- and it can hardly be burdensome given the huge increase in net corporate profits.
The hike in employer health insurance costs, likewise, is not a true benefit for workers. It reflects a health system out of control, and excessive charges and profits by health maintenance organizations and drug companies. Actual health insurance benefits to workers are being cut back, and not just by Wal-Mart. Corporations generally are hiking the employee share of premiums, and plans are increasing deductibles and copayments.
I hope Wal-Mart does become a poster child for all that's out of whack with the US economy. But we need to go after a great deal more than Wal-Mart if politicians are serious about restoring the dream of an America where people who work hard and play by the rules can aspire to be middle class.
Robert Kuttner is co-editor of The American Prospect. His column appears regularly in the Globe.
Copyright 2006 Boston Globe