The Wal-Mart Trap

By Annete Bernhardt

This article is from the September/October 2000 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2000/0900bernhardt.html


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This article is from the September/October 2000 issue of Dollars & Sense magazine.

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For every woman shattering the glass ceiling, there are many more trapped in low-wage jobs and working conditions that don't look very different from those at the start of the women's movement. Since 1973, the gender gap in wages has almost been cut in half, but women still earn significantly less than men, are still segregated in traditionally female occupations, and are less likely to have health and pension coverage—despite total parity in education. The problem is especially severe at the bottom of the wage hierarchy. In 1997, 18% of white men earned poverty-level wages, compared to 32% of white women, 43% of black women, and 53% of Hispanic women.

So where are all the low-wage jobs coming from? And why haven't they gone away in the "postindustrial" economy? Most of them are service jobs, and most continue to be the territory of women and people of color: hotel room cleaners, nursing assistants, data-entry clerks, hamburger flippers, secretaries, childcare workers, cashiers, tellers, call- center operators. These jobs are not coming from dinosaur firms that somehow haven't yet caught on to the new "high-tech" credo. More and more, low-wage jobs are being created by efficient, technologically sophisticated firms. The new "high-tech, low-skill" business strategy is typified by the retail industry, and particularly by the business model of retail giant Wal-Mart. And because this model is so profitable, it will continue to dominate the working lives of many Americans, especially women.

Segmentation in the Retail Industry

In the private sector, one in five Americans (21%) currently holds a retail job. Among the occupations with the largest projected job growth to 2006, cashiers and salespeople rank first and fifth, respectively. Yet retail wages for non-managerial workers averaged only $9.08 an hour in 1999. In 1997, nearly a third (31.7%) of the workers living in poverty worked in retail, compared to 15.8% of the overall population. While jobs in this industry have never been good, retail wages have actually fallen as a percent of the national average, from 74% in 1973 to 68% in 1999. This deterioration in job quality has been driven by a splitting of the consumer market over the past two decades. On the one hand, there are now specialized department stores, upscale grocers, and home improvement and auto repair centers offering personalized, in-depth service. On the other hand are the mass discounters, outlet stores, and uncountable fast-food franchises offering no-frills service and cheap products. Here, wages and job quality rank at the bottom.

Bloomingdale's and Stern's department stores, both owned by Federated holding company, illustrate this split. Bloomingdale's serves high-income customers. Only 20% of its workers are part-time, turnover is low, wages are above average for Federated stores, and a significant amount of money is spent on recruiting polished workers with good "people skills"—mostly young white women attending college. By contrast, Stern's is a mass-market operation. It focuses not on service but rather on centralizing and streamlining operations with new technology and fewer people. Wages are significantly lower, about 60% of the jobs are part-time, and turnover is high. Employees tend to come from working-class backgrounds.

This market and job segmentation has emerged in such industries as healthcare, banking, telecommunications, insurance, and airlines. But retail is unique, because it is dominated by the low-wage strategy. And this strategy has been defined, almost single-handedly, by one company.

The Ascent of Wal-Mart

The "Wal-Mart model" is the leading retail strategy (perhaps the leading business strategy in any sector) to emerge since the 1970s. This model features a super-efficient production process in which each operation—buying products from manufacturers, distributing them to the retail stores, and selling them to customers—is linked to the next in a continuous "just-in-time" chain. Starting with the premise that its stores would compete with "everyday low prices," Wal-Mart has attacked this coordination problem on several fronts.

At the core of its strategy lies technology. Wal-Mart pioneered the use of inventory-managing technology, and in recent years has invested some $600 million in its information system. When scanning barcodes, cash registers instantaneously record and track every item sold, producing an up-to-the minute computerized inventory record. This information is then linked directly to both the warehouse distribution centers and the manufacturers that supply them, automating the whole restocking process.

Wal-Mart's integration of the entire supplier-distribution chain may seem straightforward, but it is in fact extraordinarily difficult to achieve. As of June 2000, the company was selling thousands of products in its 2,988 U.S. stores, staffed by 885,000 workers. These stores were supplied by 51 distribution centers and served more than 100 million customers weekly. The "just-in-time" flow depends on tighter relationships with suppliers, another Wal-Mart innovation. The company has increasingly focused on a small core of suppliers, pressuring them for bigger discounts, help in delivery and stocking, product testing and development, and even total dedication to supplying only Wal-Mart.

Technology is only a conduit for Wal-Mart's single-minded business strategy of total market dominance. Until recently, the company has wisely stuck to non-urban areas where retail competition is weak. When it enters a new region, Wal-Mart places one or two initial stores according to a grid. It then successively adds more stores, breaking the grid into smaller and smaller pieces, until the region is saturated and mom-and-pop stores have been driven out of business. This strategy has not gone unnoticed: in America's heartland, communities are increasingly protesting the arrival of new Wal-Mart stores.

People Under the Wal-Mart Model

Contrary to heavy company publicity, such as television commercials featuring happy Wal-Mart "sales associates," most jobs at Wal-Mart are not good jobs. Sales associates basically ring up sales, stock and neaten shelves, and handle lay-aways. Traditional job segregation continues unabated at Wal-Mart: Women are disproportionately relegated to cashier positions, customer service, or sales positions in low-ticket departments such as apparel and jewelry, while men are disproportionately assigned to managerial positions or to lucrative departments such as appliances.

Work schedules change constantly, and if demand is slack, associates are asked and even required to leave their shifts early. Conversely, part-timers often work full-time hours without getting the corresponding benefits. Stores are often understaffed, something Wal-Mart workers blame for the stressful work environment. When the company opens a store, it hires more workers than it will eventually need, partly to help with set-up, but also to screen its new employees. After several months, Wal-Mart lets go those it does not need. Clearly, workers are bearing the brunt of the "just-in-time" system.

Not surprisingly, the company keeps a tight fist on its payroll. Starting wages are either at or close to the minimum wage. Raises are not guaranteed and top out at 30 a year. Even department heads start at only $8 an hour. Genuine full-time work (40 hours a week) is hard to get at Wal-Mart, because the company defines "full-time" as 28 hours a week. This odd definition allows the company to increase staffing as needed, without exceeding the limit of 40 hours a week (thereby avoiding the time-and-a-half pay mandated by federal law). Health benefits are available for full-timers, but the workers must contribute 40% from their own paychecks (a significant deduction at $5 or $6 an hour). There is no pension plan, though the employee stock ownership plan is touted as a substitute. The problem is that most workers never benefit from this system. Between high turnover and low pay, less than 2% have accumulated $50,000 or more in stock.

Prospects for Career Mobility

Wal-Mart registered sales of $165 billion last year. The company consistently outperforms other retailers on most measures of productivity and performance. Its business model has put enormous pressure on the industry to follow suit, and will continue to prevail in the foreseeable future.

Is this really cause for concern? One common argument is that the retail sector and other low-wage service industries serve as a temporary way-station for workers—mothers wanting to get out of the house, retirees looking for something to occupy their time, and especially teenagers earning spending money. But this is a misleading or, at the very least, outdated picture. In 1996, only 16% of the workers in this industry were between the ages of 16 and 19. Fully 44% were age 35 or older. More and more, retail workers depend on their jobs for their long-term livelihood. In working-class and inner-city communities across the country, retail is in fact the main employer.

And in this dependence lies the heart of the problem, because low-wage jobs are "sticky"—once you're in, you're trapped. Moving up is tough, since many service industries have extremely flat job hierarchies. Sales and service occupations make up more than two-thirds of retail jobs, and the average ratio of managerial to front-line workers is 1:15. A typical Wal-Mart store has one store manager, four assistant managers, and 235 non-salaried workers. Moving out is equally tough, because training is almost non-existent. Retail workers get, on average, seven hours of training (last among 14 business sectors), giving them few skills with which to get better jobs.

Policy Options

So what are the options for boosting job quality at the bottom of the service sector? The answer will probably not be found in the market. Wal-Mart has perfected a business strategy that does not build on "human capital" but that is nevertheless high-tech, efficient, and profitable. This means that the "high-road" carrot is unlikely to work here. Wal-Mart and its ilk are already taking the "high road" technologically—only with a low-wage crew. These businesses have nothing to gain by upskilling jobs. If Wal-Mart trained and paid workers to spend more quality time with customers, profits would suffer. Similarly, what would convince McDonald's to shift its Taylorized system to one based on skilled workers, given the enormous startup costs and the amount of capital it has already sunk into designing its kitchen around low-skill labor?

High-skill strategies are a hard sell at the bottom of the service sector. Ultimately, the only realistic solution to bad jobs in these industries is non-market intervention. The minimum wage and Earned Income Tax Credit are obvious candidates, though they will likely not suffice, especially since the latter ends up subsidizing low-wage employers. In the long run, what is needed is an all-out unionization assault on Wal-Mart and other firms like it. The United Food and Commercial Workers International Union (UFCW) is starting to do just that, responding to Wal-Mart's entry into the supermarket industry by mounting a national community-based organizing campaign. This spring, for example, meat cutters at a Wal-Mart store in Jacksonville, Texas, won union recognition, a first in the history of the retailer. But Wal-Mart responded by closing its meat-cutting operations in 180 stores in six states, including the one where workers had organized.

The obstacles to organizing a high-turnover service workforce are enormous. A new type of unionism will likely be needed, one that is multi-employer and occupationally based. Pursuing such a strategy will take significant reform on many fronts—not only in labor's willingness to adopt a new constituency and new organizing tactics, but more importantly, in labor law itself.

Annette Bernhardt is a senior associate at the Center on Wisconsin Strategy, University of Wisconsin-Madison. Her research focuses on low-wage labor markets and developing viable policy solutions in the service sector.

Resources: Annette Bernhardt, "Performance Without the High-: Firms and Technology in Low-End Services," presented at the 2000 Annual Meetings of the Industrial Relations Research Association, Boston, MA; Lawrence Mishel, Jared Bernstein, and John Schmitt, The State of Working America 1998-99, Washington D.C.: Economic Policy Institute, 1999.
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