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Higher wages mean you pay more at the store

Updated: August 12, 2013 5:31PM



President Obama’s high-wage vision of the American economy could make a consumer’s typical shopping trip nearly five times more expensive.

Think that’s an exaggeration? Mr. Obama promised recently that for the “remainder of his presidency” he would focus his energy on “asking our businesses to set an example by providing decent wages and salaries to their own employees.”

“I’m going to highlight the ones that do just that,” the president said. “Companies like — there are companies like the Container Store, that prides itself on training its employees and on employee satisfaction — because these companies prove that it’s not just good for the employees, it’s good for their businesses to treat workers well.”

Enticed by the presidential endorsement, I stopped by The Container Store in Chestnut Hill, Mass., on Friday and checked prices on a few items. Ten “space-saving” clothes hangers, usually $9.99, were on sale for $6.99. White tubular plastic hangers were 32 cents each. An Oxo “good grips” can opener was priced at $13.99. A black, steel, 2-drawer file cabinet was $199. And a white plastic milk crate, for stackable storage, was $12.99.

Then I headed to a nearby Wal-Mart, whose wages and benefits are denounced as stingy by Mr. Obama’s political allies, to compare prices. Wal-Mart had a package of ten plastic hangers for $1.17, less than half what they would have cost at The Container Store. Wal-Mart’s price on nonslip space-saving hangers was $12.88 for a pack of 30, which, on a per-hanger basis, was nearly 40% less than even The Container Store’s “sale” price. A can opener at Wal-Mart was $1.88, more than $12 less than the cheapest one at The Container Store. Wal-Mart’s black steel file cabinet was $37.88, more than $160 less expensive than the one at The Container Store. And the Wal-Mart plastic milk crate was $3.47. You could have bought three of the Wal-Mart crates for the price of one from The Container Store.

The full shopping list — 10 of each kind of hanger, the can opener, the file cabinet, and the milk crate — cost $236.17 at The Container Store, and $48.69 at Wal-Mart. That’s $187.48 more at The Container Store than at Wal-Mart.

The Container Store Web site boasts, “We offer wages and salaries for salespeople that are as much as 50% to 100% higher than the retail industry average.” It stands to reason that those higher wages for employees would translate into higher prices for consumers. The money for those higher wages has to come from somewhere, after all. It could come from lower profits at Leonard Green & Partners, L.P., the private equity shop that owns The Container Store. But that’s not a likely scenario. After all, Leonard Green’s investors include some of the same public-employee pension funds often heard complaining about how excessive CEO pay comes out of shareholder pockets. It’s a paradox: somehow, paying salespeople double the market rate merits presidential praise, while paying executives double the industry average triggers widespread condemnation.

There are factors other than wages or profits that may account for some of the price differences between the Container Store and Wal-Mart. The Container Store may be paying its suppliers more, or be paying more in rent. Its products may be higher quality. But surely some of the difference is the employee pay.

The owners of a private business, of course, are free to pay their employees, from entry level to the executive suite, as generously as the owners can afford to. And if there are shoppers out there who prefer to pay extra to patronize establishments where they can be sure the salespeople are generously compensated, they, too, are free to choose where to shop.

What President Obama and his allies are really up to, though, isn’t simply “asking our businesses to set an example.” “Asking” is an Obama euphemism for forcing, as in “asking the wealthiest Americans to pay a little more in taxes.” Mr. Obama called in the State of the Union address for increasing the federally mandated minimum wage to $9 an hour from the $7.25 at which it currently stands. At least 30 senators and 140 Congressmen have sponsored legislation backed by the AFL-CIO that would go even further and raise the minimum wage to $10.10 an hour. Dozens of economists signed an open letter last month backing different legislation that would raise the minimum to $10.50 an hour.

If you think your tax bill or credit card bills are high now, just wait until the receipts of your shopping trips start including the passed-along costs for paying President Obama’s definition of “decent” wages.

Ira Stoll is editor of FutureOfCapitalism.com and of Smartertimes.com.



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