Microeconomic Analysis Why Government Must Term Paper

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If the minimum wage is raised, and all competing businesses with Wal-Mart raise their wages and thus the prices of their goods, Wal-Mart can be assured of a more level playing field, theoretically, even if it must raise the prices of its goods by a few cents. Scott himself said his company could not change its own wage structure without government assistance because of tough competition from competitors like K-Mart and Target. "Even slight overall adjustments to wages eliminate our thin profit margin...because we are so big, people forget that we have to compete." (Joyce, 2005, p. D5) Scott noted that Wal-Mart actually paid above the technical national minimum wage, and said he was thinking more of the customers of the store, rather than the store's employees. However, one might note that there is quite a great deal of overlap between the two, Wal-Mart employees and Wal-Mart shoppers. Which consumer base is likely to care about saving a few cents on cereal, or worry about the cost of gas going from one store to another, week to week, looking for the best bargains? A minimum-wage worker who works at Wal-Mart, of course, is the customer most likely to have to engage in such economizing.

The classical theoretical analysis of supply and demand that suggested workers have seemingly infinite choice where to ply their labor never met the economy of scale that is Wal-Mart. The only check has thus been the media: "the toll that Wal-Mart has taken on working-class living standards here in the United States, are receiving increasing scrutiny -- enough to impede the company's growth." (Meyerson, 2005, A14) Interestingly, the government actually has a hand in Wal-Mart's free-market dominance. Although it is the symbol of everything that is capitalist and American, because only 44% of Wal-Mart's nearly 1.3 million U.S.

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employees are covered under its health insurance, thousands of Wal-Mart employees must use the state Medicaid program for the indigent. The insurance the company does offer comes with a $1,000 annual deductible, "a hefty chunk of change considering that the average Wal-Mart employee makes less than $19,000 a year." (Meyerson, 2005, A14)

Who pays for the indigent's medical care? Why, the same taxpayers who glory in saving a few cents by shopping at Wal-Mart. This is testimony to the many hidden costs, both financial and social, that consumers do not or cannot take into consideration when deciding where to buy their goods and services, hence the need for legislation mandating a minimum wage and minimum benefits. It is also testimony to the danger of allowing workers to work for too little -- and also the absence of the free marketplace producing incentives for companies the size of Wal-Mart to provide affordable insurance for its workers. Small businesses often do not have the resources to provide worker insurance, Wal-Mart has the resources but lacks the incentives -- yet another reason the federal government must step in and require businesses to provide adequate wages and benefits

The breakdown of the Wal-Mart system, some executives might state, is evidence of the triumph of capitalism -- even Wal-Mart realizes it will lose revenue by impoverishing its workers and customers who come from the same income bracket. But the harsh spiraling out of control of the business cycle, should demand began to dip too low because of poverty, and because of the size of the nation's largest retailer, shows that the government must act before this occurs. This is why government must set a minimum wage and provide minimum benefits -- and better police the ethical activities of businesses like Wal-Mart.

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