A while back, I marvelled at how Wal-Mart appears to be immune to criticism about its horrible employment practices, and how I couldn’t understand how Wal-Mart managers can feel good about themselves knowing that they are part of a system that routinely fails to comply with even minimum labour standards. Now comes yet another settlement by Wal-Mart, this one involving at least $352 million (U.S.) (and up to $600 million) to settle a variety of lawsuits from across the U.S. claiming unpaid wages, according to this New York Times story.
The settlement had a marginal impact on Wal-Mart’s 4th quarter profits, and presumably will effect profits again when more money is paid out down the road. But overall, Wal-Mart is booming, especially so in this recession, as more people look for cheap stuff. The ‘Boycott Wal-Mart” campaigns don’t work, because most people who shop at Wal-Marts just want cheap prices. They do not see it as their problem that labour law enforcement mechanisms are largely ineffective.
And therein lies one of the ironies: Wal-Mart profits by breaking employment laws by being able to price goods lower than other retailers who actually obey labour and employment laws. Economists might describe this as ‘efficient breach’: the idea that Wal-Mart may be better off breaking labour laws than complying with them if, in the end, the benefit from breaking the laws is larger than the cost of occassionally having to pay a fine or settle a lawsuit. How could governments address this situation? Should they?