Before the deep, deep discounts and back-to-school sales, before it was the end of summer and the start of college football season, Labor Day signified just one thing: respect for America's organized labor. Originally proposed by the secretary of New York's Central Labor Union, the holiday was slowly adopted, state by state, until 1894. That year, the massive Pullman car strike ended with the massacre of 30 people, $80 million in property damage, and a national labor force that was furious. In an attempt to smooth things over, Congress and President Grover Cleveland rushed through a bill that made Labor Day a federal holiday.
Almost 120 years later, unions are in the middle of a steep decline. According to the Bureau of Labor Statistics, in 2012, the total number of union members fell to 14.3 million, or 11.3 percent of U.S. workers -- the lowest level since 1916. It isn't hard to see why: On one side, an increasing number of states have enacted right-to-work laws and have placed restrictions on collective bargaining. At the same time, a growing number of employers across the business spectrum have actively fought union formation. Even Northeastern University hired a union-busting law firm to deal with faculty members who were attempting to collectively bargain.
On the other end of the employment spectrum, Walmart, a company that has been repeatedly called out for its low, low wages, has made an art out of fighting unions. As Bloomberg reported late last year, America's largest private employer has closed stores that voted to unionize, packed various sections with anti-union workers, and -- in one especially stunning case -- decided to close the meat counters at 180 stores when its butchers voted to unionize. It routinely bars union organizers from Walmart property, forces employees to attend anti-union meetings, and threatens to replace employees who try to unionize.
However, unions also bear some of the blame for their decline. In the face of an anti-union PR blitz that has tagged them with a host of shortcomings, their response has been weak and, at times, tin-eared. Their biggest ad push of recent years was based around a commercial titled "Work Connects Us All," which pointed out the value of jobs, but failed to show how jobs were connected to unions.
Even as unions have declined, though, a growing body of research has demonstrated why they are important to the nation's workers. Earlier this year, for example, the Bureau of Labor Statistics noted that full-time workers who were unionized earned, on average, $943 per week, compared to $742 for those who weren't.
Meanwhile, news outlets have noted that, as worker wages have fallen, corporate profits have soared. The Economic Policy Institute connected the dots between these trends, noting that the decline in union membership has almost perfectly mirrored the growing income inequality gap. In other words, as union membership drops, the share of income going to the top 10 percent of households has risen in almost perfect lockstep.
Recently, unions have begun a fresh push to slow their fall, targeting younger workers and offering to help non-unionized workers in their struggles for better work conditions. And, with a growing number of non-union minimum-wage workers employing union tactics to publicize their need for higher pay, it seems like unions might be on the edge of finding fresh relevance. Assuming, of course, that they can stay out of their own way.
Walmart's Cheap Labor: Bad for Business, Bad for Shoppers
Happy Labor Day: But What the Heck Happened to the Unions?
Last week, Walmart agreed to pay an $81.6 million settlement after pleading guilty to violating the Clean Water Act and other environmental laws in California and Missouri. It's not the first time Walmart has had to pay up for environmental violations, either. In 2012 the company paid a $27.6 million settlement to settle similar charges from California authorities.
Federal prosecutors claimed that poorly trained workers disposed of fertilizer, pesticides, and other toxic materials by dumping them into trash bins or pouring them into drains connected with the sewer system.
In other words, Walmart's reliance on employees lacking key training cost it nearly $110 million for these violations alone.
Granted, Walmart has updated its training programs to teach employees how to dispose of toxic materials. However, here are some reasons to believe this scandal is a symptom of a larger problem.
Consider the Huffington Post's analysis of an internal Walmart document leaked last year. A low-level worker at Sam's Club (a division of Walmart) who starts out making around $8 per can expect to make about $10.60 per hour after working at the company for six years if he is a "solid performer" and gets one promotion (the average rate). With wages like those, it's no surprise that the company's annual turnover rate was more than 37 percent in 2011.
Because it's not paying employees enough to stick around, Walmart has an incentive to invest as little as possible into training each employee, lest their investment simply give their employees the skills to obtain higher-paying work elsewhere.
Under its current labor model, the company certainly has reason to train its employees well enough to avoid a scandal -- but just well enough -- and sometimes skating along that edge turns out to be costly, as is the case when employees don't know how to properly deal with toxic waste.
According to Bloomberg, this workforce reduction has driven customers away due to the company's inability to keep its shelves stocked and keep checkout lines moving.
Clearly, these are known issues. Even a single out-of-stock item can significantly affect sales. Walmart went so far as to hire an outside firm -- Acosta -- to secretly audit the availability of certain items in its stores. Bloomberg quotes a 2012 study in which Erick Kritsky, Acosta's director of application development, said, "In a superstore, if we fix a void at the beginning of the month, one single SKU in oral care translates to about $360,000 in sales at the end of the month."
The high cost of cheap labor isn't just monetary. Cheap labor also brings risks of worker safety scandals, such as the recent building collapse in Bangladesh that killed more than 1,100 workers and a factory fire last year that killed 112 people. Both factory buildings contained evidence that the companies were doing business with Walmart.
While retailers like Walmart may be drawn to Bangladeshi factories because they are low-cost options, these discounts come at a cost to worker safety when factory owners fail to invest in safe working conditions to ensure they can offer the lowest possible prices.
In addition to creating bad PR, safety scandals can cause worker unrest and disrupt a business' supply chain. For example, after the building collapse, violent protests erupted in Bangladesh, in which workers set fire to at least two factories.
Some retailers show that low-cost labor is not the only alternative. For example, Trader Joe's has a rule that the minimum pay for all full-time workers must be at or above the median household income in their community. Also, Slate has reported that after less than five years at Costco (COST), employees will make about $19.50 per hour and receive a $2,000 bonus twice a year.
And the cost of such "generosity"? Forbes points out that Costco's most recent quarterly report showed 8 percent sales growth from last year, while Walmart offered only 1.2 percent sales growth.
Granted, Costco's relatively smaller size gives it better growth potential than the Bentonville Behemoth. However, its ability to operate on a higher-wage model suggests that cutting workers' pay to the bone isn't the only way to go.
It's a point investors should note as they look at mass-market retailers: There are investment opportunities that lack the risks associated with Walmart's cheap labor model.