Does WalMart Have the Right Idea?

Despite a friendly Congress and a pending labor bill, unions are under fire these days in Detroit and elsewhere — perhaps with good reason. A working paper by David Lee and Alexandre Mas finds that a successful unionization vote significantly decreases the market value of the company even absent changes in organizational performance. Lee and Mas run a policy simulation and conclude that, “ … a policy-induced doubling of unionization would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.” [%comments]


qingl

I, personally, look forward to the day when there are no unions and we can get back to the perfect world of Dickensian England.

Kevin MN

Why do the owners of capital have a greater claim to the wealth than the owners of labor? Overall wealth isn't being decreased it is just distributed differently. Minimum wage laws, OSHA, consumer safety laws, and enivormental regulations all decrease the equity value of companies that have to abide by these laws, should all of these laws be scrapped so Wal-Mart can make more money?

If we re-instituted slavery, Wal-Mart would probably be able to lower the labor costs, which would lead to an increase in their share price. The abolishment of slavery has clearly had a negative effect on the equity value of Wal-Mart, clearly this means we should re-instate the "peculiar institution" because it would cause an increase in their stock value.

Straydingo

Personally I don't find this very surprising - Unions are only interested in maintain the status quo which is a death sentence to any business trying to survive in the modern global economy.

Brian

I think we're finally at a point in American where we can say "nationalized industries and labor unions are less efficient than a completely free market system but we don't care since they have the interests of the people at heart rather than simply profit."

Sure free markets DO create more efficiency but look what this so called "efficiency" has wrought in the health care industry.

Greed may be the biggest motivator but it isn't always the best motivator.

Bobby G

Kevin, come on.

No one is suggesting slavery. They're simply suggesting that unions lead to a price floor on the price of labor. Price floors and price ceilings are government-imposed market inefficiencies; in the case of a price floor on wages, it means laber can be overpaid resulting in a societal deadweight loss.

The removal of unions (or at least the removal of the political rights behind striking) does not mean slavery, nor does it mean unsafe labor conditions. It simply means the companies and the employees can work out the market equilibrium wages. Why is it bad to get paid according to the demand (and quantity supplied, in terms of other workers) for your labor?

Richard

I am sure that I am not the most educated when it comes to the intricacies of unions but there does seem to be something wrong with the idea to me. When a person starts a business,he/she might become rich beyond what might be considered "polite" but that is because he took on all the risk. The members of a union do not take on anything close to this level of risk but yet seek to leverage itself on the "fulcrum" that its employer created. I do believe that we should have laws to ensure that there are fair labor practices but unions take this too far to where employees are subsidized by the general public beyond what their work is worth.

Mike

Look at Chrysler's bankruptcy for a great example of what happens when unions become too powerful; the UAW is getting a 55% ownership stake in the company as a result of a failure they're largely responsible for.

MRB

No, WalMart does not have it right.

The presumption is that increased value of the company is better, and that unionization lowers the value, and is therefore better. Walmart could become extremely more valuable if they were to literally enslave their employees too, but no one (outside of Jessie Helms, I think) ever claims that the South "Had it right".

The question is, what is the likewise gain in employer welfare and happiness and to the overall economy (that union money gets spent somewhere) and how does that compare to the profits of Wal-Mart execs?

Renee

"even absent changes in organizational performance..."

So unions come in, there is no change in performance, but share prices go down. I'm sorry, why are unions under fire? Why aren't the stupid, reactionary stock markets under fire?

Jim

Why do the owners of capital have a greater claim to the wealth than the owners of labor?

Because they take all the risk. Without the capital owners, the labor owners would not have a place to apply thier skills. If the business fails does the laborer loses his ability? no. Does the capital owner lose his capital? yes.

Its simply risk and reward... The capital owner has a higher risk of loss and therefore gets a higher return on his investment.

Jason

Unions have their place as do laws that specify minimum wage, labor practices etc... I think all of the above will generally go too far though. I think unions have done good things for the country and the world. I think they have outlived or outreached their usefulness. It would be great to see them go away completely at this point.

Dustin

Re: Kevin MN #2

You do get that its not just so that "Wal-Mart can make more money...", right?

I haven't looked for a list of the significant share-holders of Walmart, but I'm willing to hazard a guess that a sizeable portion of their ownership is institutional investors (pension funds, mutual funds, etc.)

Feel free to go through your 401k or pension system's investments and you'll very likely find that a significant portion of your personal wealth is tied up in those big, bad multi-national corporations that are just out to take advantage of the poor, down-trodden worker . Or, if not, you are most certainly invested in companies who do depend on Wal-Mart or other big, bad corporations for their profits. Or perhaps you're not invested in squat.

Welcome to the global economy. I for one think its a great idea that Chrysler just became an employee owned company.

Before you go off at me, both my father and grandfather were Teamsters. Both made sure I never even considered going that route.

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Daniel Howard

“ … a policy-induced doubling of unionization would lead to a 4.3 percent decrease in the equity value of all firms at risk of unionization.”

So, Union shops would come out ahead, since they have no further risk of unionization, ya?

Mike McNamara

What #1 said.

I won't argue that these numbers are correct; in fact, everything in my (slightly educated but far from expert) gut tells me they make total sense. But fortunately, numbers like that aren't the only characteristic to define a company's "value."

In other words, no, WalMart,. while far from the devil many would have you believe, is not right on this idea, no matter what the numbers say.

Julie

Are these results a surprise? Unions inflate wages and decrease productivity.

YES, I agree that employees need to be treated properly, but outside of this current recession, the supply/demand curve should ensure that this happens. There are too many intangible forces in play that prevent employers from treating employees unfairly.

charles

Kevin,

"Why do the owners of capital have a greater claim to the wealth than the owners of labor?"

Because the labor can be replaced and the capital cannot. Labor can put up the capital if it likes (employee owned)...but then it would likely want to rid itself of itself.

"Minimum wage laws, OSHA, consumer safety laws, and environmental regulations all decrease the equity value of companies that have to abide by these laws, should all of these laws be scrapped so Wal-Mart can make more money?"

This statement, taken in whole, is false, and I won't bother to touch on the slavery thing as that's simply comedy.

I've worked within a union and without, and I've managed union employees and non-union. The reason for the loss of market value goes beyond any simple increase in obvious costs such as wage. There is a huge and mostly hidden cost to dragging around anchors that tend to be difficult to cut loose in a union shop. It's a much more complicated picture.

Best of all, well managed companies don't need unions, and the people don't want them, so I see great value in unions as "medicine" for a sick patient (poorly managed companies).....but dangerous medicine, since it's also detrimental to the patient.

Qingl - you have nothing to fear - the world is full of poor managers that will provide an environment for unions to flourish within.

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Matthew

@2: Because the owners of capital are taking the risk of losing their money. The owner of labor risks nothing to do a job. If they agree to work for 10/hr and show up for 8 hrs they will get $80. The owner, on the other hand, risks paying people to make a product that may be made obsolete by a competitor, be somehow defective, be less desired than other products. In short, the owner of capital risks losing his capital. Without the reward of a claim on the fruits of ownership he would just as soon do something else with his capital and then that employee wouldn't even have a job.

tp

"Overall wealth isn't being decreased it is just distributed differently. "

Seems the authors of this study would disagree.

"Minimum wage laws, OSHA, consumer safety laws, and enivormental regulations all decrease the equity value of companies that have to abide by these laws, should all of these laws be scrapped so Wal-Mart can make more money?"

Perhaps not scrapped so Wal-Mart can make more money, but there are pretty good policy arguments in favor of scrapping each of those types of provisions, regardless of the distributional effects we're targeting.

emw

The problem with most unions is that they add layers of management without adding productivity. It makes sense that the value of a unionized company would decrease.

However, unions--or at least the threat of unionization--has to exist to provide some protections to the workforce.

Gary

What is the unintended consequence of unionizing Wal-Mart? I'm pretty confident it will be a dramatic increase in the use of self check-out, and a corresponding reduction in the number of check-out clerks. Now maybe that means that the would be bagger will instead go to college, study biology, and cure cancer. That would be splendid. Somehow I find it more probable that she'll end up unemployed.

If you're not careful when moving the invisible hand, it will smack you in the head.