Carpe Diem

Wal-Mart More Selective Than Harvard? Doesn’t That Mean That Wal-Mart Wages Are Too HIGH?

According to the NY Times:

Stanford University received a record 23,956 undergraduate applications for the fall 2007 term, accepting 2,456 students, meaning the school took 10.3% of applicants.

Harvard University received applications from 22,955 students, another record, and accepted 2,058 of them, for an acceptance rate of 8.97%.

Applications to Columbia numbered 18,081, and the college accepted 1,618 of them, for what was certainly one of the lowest acceptance rates this spring at an American university: 8.9%.

According to the Atlanta Journal-Constitution:

They came in droves — high school students, retirees, young moms, the unemployed — all for a shot at a job at a new Wal-Mart on Memorial Drive in central DeKalb County.

In just two days, and with virtually no advertising or even any signs, a staggering 7,500 people filled out applications for one of the 350 to 400 available jobs.

Bottom Line: Wal-Mart accepts only about 5% of its applicants, compared to the most selective universities, which accept 9-10% of their applicants. Alternatively, Wal-Mart has about 20 applicants per available job, compared to Standford, Harvard and Columbia, which have only 10-11 applicants per available opening.

Further, the standard assumption is that Wal-Mart’s wages are unreasonably low. A Google search of “Wal-Mart” and “low wages” results in 122,000 hits. But with Wal-Mart receiving 20 applications per position, you could make a stronger case that Wal-Mart’s wages are actually TOO HIGH. That is, Wal-Mart could lower its wages considerably and still have too many applications.

Carpe Diem

Indian Stock Market Continues to Set Record Highs

MUMBAI–India’s Bombay Stock Exchange benchmark index, the Sensex, crossed the 21,000 peak in early morning trading, adding the last 1,000 points in 49 trading sessions (see chart above, click to enlarge).

The BSE benchmark completed its 1,000-point journey in 49 business days after touching the 20K milestone on October 29, last year. In trading today, the BSE reached another new all-time high, trading above 21,100 before closing slightly lower.

Note: India’s stock market has increased by 50% over the last year.
Carpe Diem

Wal-Mart’s Diffusion: A Slowly Blooming Flower

Wal-Mart started with its first store near Bentonville, Ark., in 1962. The diffusion of store openings radiating out from this point was very gradual. And this diffusion didn’t just occur in one direction, but spread out in all directions, with the same measured deliberation. Imagine a slowly blooming flower, or a pebble dropped in a pond, with the waves moving across the water in slow motion.

It is useful to contrast Wal-Mart with Kmart, as both opened their first stores in 1962. Wal-Mart, from the very beginning, was different from Kmart. Wal-Mart built up its store network gradually from the center out; Kmart (and Target, for that matter) began by scattering stores all over the country. Early on, Wal-Mart focused on logistics, with things like daily deliveries from its distribution centers, early adoption of advanced communication technology and so forth. Kmart did not do these things. A customer going into these two stores might not be able to see much of a difference between the two stores. But underneath, in the way that merchandise was getting on the shelves, these stores were very different.

I don’t think that Wal-Mart’s logistics strategy was appreciated at the time. Its model, now being replicated by others, was a new model.

From an interview with University of Minnesota economist Thomas J. Holmes in the Minneapolis Federal Reserve’s “FedGazette” on Wal-Mart’s location strategy.

Watch an incredible video of Wal-Mart’s entire year-by-year diffusion path and location strategy throughout the United States, beginning in Arkansas in 1962.

Carpe Diem

The People’s Car and Automotive Globalization

How about a car expected to retail for only $2,500, or about the price of the optional DVD player on the Lexus LX 470 sport utility vehicle? India’s Tata Motors (NYSE:TTM) will release the world’s cheapest car on Thursday, read more here in the NY Times.

Tata Motors is also the likely candidate to acquire Jaguar and Land Rover from Ford for about $2 billion.

And at the same time, Ford plans to more than double its investment in India to produce a small car for the fast-growing local market and to build an engine manufacturing plant there. Ford will likely increase spending in India by $500 million, raising its total investment to $875 million, as it focuses on making the country a regional hub for small-car manufacturing.

Bottom Line: Think about it – Ford will get about $2 billion from an Indian company for its British vehicle division, and at the same time it will invest almost $1 billion back into India for its expansion of operations there. Tata Motors will introduce the world’s cheapest car, and at the same time will probably be selling one of the world’s most expensive cars – Jaguar. What a flat world.

Carpe Diem

Retail Clinics and Competition Are Forcing Change

I posted recently about Target’s retail health care clinics that opened recently in Minnesota and Maryland offering “quick, convenient care from a certified profession for a variety of everyday illnesses – no appointment necessary.” What do primary care physicians think about this competition from retail clinics at Target, Wal-Mart and Walgreens? Any time consumer options increase and demand becomes more elastic, you can be pretty sure that status quo suppliers must be feeling some pressure from the increased competition. Here some evidence:

According to FierceHealthcare: Primary care physicians may not be sure what to do about competition from retail clinics–but this may be an option. Slowly but surely, clinics are trying new ways to make themselves flexible and accessible in ways that hadn’t been common before. In Portland, for example, ZoomCare is open 362 days a year, offers evening hours, and accepts walk-in patients. Not only can they walk in, they can go online to schedule appointments and see how long their wait time will be. Zoomcare was profitable in 2007, and patient volume is growing 20 percent per quarter.

Read a related Portland Business Journal article here.

MP: Isn’t it interesting that starting in the 1960s Wal-Mart pioneered an entirely new method of discount retailing and in the process broke up the old, static, stagnant retail model of high-priced department stores of that era. Perhaps the new retail model of providing low-cost retail healthcare at Wal-Mart and Target will ultimately have the same effect on the medical status quo and the AMA’s cartel?

Carpe Diem

Workers Pay the Burden of Higher Corporate Taxes

Democratic front-runner Obama wants to raise corporate taxes, and taxes on capital gains and dividends. John Edwards says he will stand up to the interests in Washington that run government for the “glorification of corporate profits,” as he has been regularly condemning the top six oil companies for collecting over $477 billion in profits over the past six years and often criticizing Exxon Mobil for earning $40 billion last year, the largest annual corporate profit in history.

But who actually bears the burden of higher corporate taxes? The standard assumption is that shareholders absorb the impact of higher corporate taxes, and not workers. But a new Treasury research paper, “A Review of the Evidence on the Incidence of the Corporate Income Tax,” questions that assumption:

From the paper’s conclusion: The incidence of the corporate income tax is an important issue for designing tax policy. Who bears the corporate income tax can affect overall conclusions about the progressivity of the tax system. Policy analysts have often made assumptions about how to allocate the corporate income tax in measuring the distribution of tax burdens.

A common assumption, based on theoretical models of tax incidence, is that capital (i.e. shareholders) bears the burden of the corporate income tax. Recent empirical work using cross-country data on corporate taxes and wages suggests reconsidering this assumption; labor may actually bear a substantial burden from the corporate income tax.

Empirical evidence from three different studies cited in the paper includes:

1. It is estimated that 61% of any additional corporate tax is passed on in lower wages in the short run, and around 100% in the long run.

2. Using cross-country panel data from the Luxembourg Income Study, it is estimated that a 10% increase in the corporate tax rate decreases annual gross wages by 7% percent.

3. The results in this paper suggest that corporate tax rates affect wage levels across countries, and that higher corporate taxes lead to lower wages. A 1% increase in corporate tax rates is associated with nearly a 1% drop in wage rates.

Bottom Line: Corporations don’t pay taxes, individuals pay taxes in their roles as shareholders, workers and consumers. Higher corporate taxes translate to lower dividends for shareholders, lower wages for workers and/or higher prices for consumers. According to the empirical evidence presented in this paper, it appears that a substantial burden of increases in corporate taxes fall on the workers employed by corporations. Higher corporate taxes = lower wages.

(HT: Ben Cunningham)