Effect of Low Cost Low Price Policy on the Economy
When firms opt for low cost pricing at the cost of worker wages and benefits, employee well-being is lowered. For instance, Wal-Mart offers its employees 12.4 lesser hourly wage than the average wage for retail worker and lower health care coverage than other retail firms (Miller, 2006). These working conditions violate wage laws, agreements about hours and conditions of work, and health and retirement plans (Goodman, 2006). With increase in size of corporations implementing low cost policy, number of people it negatively impacts also rises. Secondly, low cost policy is adopted by firms capable of mass production. Such firms have significant market influence, forcing competitors to lower costs by lowering wages. Additionally, small mom-and-pop industries that cannot keep pace with low prices of large corporations are forced to shut-down along with many other firms (Goetz, 2006, p. 212). This creates unemployment and lowers wages of employed, by creating an excess supply of labor over demand. Further, it depletes local entrepreneurial class, local leadership potential and destroys social capital or civic capacity (Goetz, 2006, p. 213), factors that can foster significant economic growth. Such has been the case with Wal-Mart. Despite lower prices, poverty rate in US has increased due to Wal-Marts low cost low price policy. Further, it imposes extra costs on tax payers due to increased eligibility for welfare payments imposed by low cost policy implementing firms like Wal-Mart (Goetz, 2006, p. 214). In the light of all this, it can be said that a low cost low price policy caused more harm to the economy than good and is, thus, not beneficial for economy.