WAL-MART….Megan McArdle applauds Wal-Mart’s low prices on generic prescription drugs, and then adds this:
At the same time, they take a huge beating for the wages they pay their workers, and the alleged stinginess of their health care plans. But these two things are flip sides of the same coin: they can afford to provide cheap drugs in part because they have a flexible and inexpensive labor force.
It’s the “in part” that critical here. Labor expenses only amount to about 10% of revenues for Wal-Mart. If you increased the pay of every single clerk, greeter, and stocker in the chain by two or three bucks an hour, it would only increase Wal-Mart’s prices by about 2%. Their prices would still be the lowest around because it’s not labor costs that account for most of their efficiency. It’s world class logistics, aggressive offshoring, enormous sales volumes, and ruthless bargaining with suppliers that accounts for most of it.
If Wal-Mart had to offer low wages and lousy benefits just to stay in business, that would be one thing. But they don’t. We should expect them to do better.