Below is a paper I wrote for a Management class this last semester. It was an interesting subject, Should Wal-mart allow its workers to unionize? Post your thoughts on the matter.....
In the last decade Wal-Mart has become the world’s most profitable retail store and private employer. Wal-Mart is led by a corporate vision of giving its customers the lowest price; which has proven to be more than successful over the years. Its executives have perfected the ability to focus on the consumer and cater to their needs in every way imaginable. Encouraging unionism would impair Wal-Mart’s ability to concentrate on its customers, and would jeopardize its relationship with its employees. Wal-Mart should not encourage the formation of local union representation in its stores.
Wal-Mart is the epitome of success in a market economy; a perfect example of what is attainable under capitalism. For years, Wal-Mart has managed to improve the standard of living throughout the world by providing the lowest costs to their consumers, while at the same time maximizing profits to its shareholders and providing employment for thousands. Wal-Mart founder Sam Walton created the focus on the consumer years ago, “we'll lower the cost of living for everyone, not just in America, but we'll give the world an opportunity to see what it's like to save and have a better lifestyle, a better life for all. We're proud of what we've accomplished; we've just begun."(Wal-Mart) So why don’t all see Wal-Mart as the savior it has become?
Pro labor union supporters argue that Wal-Mart’s employees are underpaid and their healthcare is too costly for many to afford. They argue that unions would help to improve both wages and benefits by taking collective action against Wal-Mart. The problem with this argument is that employers do not determine wages; they are determined by the simple economics of supply and demand. No firm has the arbitrary ability to influence wages. Employment is a voluntary contract between a buyer and seller. As Paul Kirklin of the Mises Institute says,
If an employer does not offer enough money to a potential employee, the potential employee will choose not to work for him. If an employee insists on more money than the employer can find another qualified worker for, the employer will choose not to hire him. An arrangement that is acceptable to both parties is where they must end up in order for them to agree to work together. The level of pay is determined by all the factors that go into supply and demand, just as with all other goods. (Kirklin, 2006)
Labor unions require substantial costs from both employers and employees. Pro-union followers often fail to mention that forming unions will cost its members hard earned money from their own pockets. According to Paula B. Voos, the marginal cost of organizing one new member is between $784-$2,994. (Voos, 1983) While the average annual expenditure per member is about $160 in 2000 dollars. “Approximately 45 percent of the operating expenses of a union go for salaries and wages of its officers and staff, with only 17 percent going toward strike payments and pension benefits.” (Troy, 1975) In essence, only 26 out of 160 dollars per union member each year are going towards the purpose of the union. The solution to higher wages does not lie in organizations, such as unions, that are inefficiently using their funds. The solution lies in the idea that in order to achieve higher wages, individuals must improve their human capital and productivity by continuing education and gaining pertinent industry knowledge.
Among other costs of unionization are the costs of lost wages during a strike. While the loss in wages incurred by strike may be covered by one’s union dues; not all unions pay lost wages and many of those who do only pay 20-30 percent of one’s original wage. There is also the risk that the worker may never return to work at his position if the employer can replace him with a nonunion worker. Wal-Mart may be forced to downsize or layoff workers as a result of unions demanding increased wages. Wages which are higher than market clearing equilibriums would higher the labor cost for Wal-Mart, which would also result in the loss of jobs for union members or drive up costs to Wal-Mart customers, causing them to lose their competitive advantage over other retail stores.
When joining unions, many workers sacrifice their individualism and flexibility in doing their job. Under unionization, personnel policies are often more strict, which allows workers less freedom in choosing their work schedules or assignments. Also, the lines of communication between employer and union member are often not as open, which creates friction between managers and workers.
In conclusion, Wal-Mart’s success can largely be attained to its focus on giving the lowest price to the customer, while at the same time providing competitive wages and excellent opportunity for its employees. If it were to compromise this philosophy by allowing labor unions to negotiate higher wages and more comprehensive, employer-paid benefits, it would be at the costs of its consumers. The costs of Wal-Mart encouraging local union representation far outweigh the unlikely benefits that may result of unionization. Wal-Mart should not encourage the formation of labor unions.
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