Why a minimum-wage hike would help Wal-Mart

It and other low-wage employers may profit from higher baseline pay, which would boost retail spending by $5 billion.

By Aimee Picchi Sep 4, 2013 2:13PM

Wal-Mart store in Secaucus, New Jersey / Jin Lee/Bloomberg via Getty ImagesPaying workers more would lead to lower profits and layoffs for America's biggest corporations, right? Not necessarily. 


Critics of a minimum wage hike cite a commonly held belief that forcing low-paying employers such as Wal-Mart (WMT) to boost compensation would lead to greater economic suffering. Higher labor costs, they argue, would require higher prices, prompting layoffs and more pain.


But research from the public policy firm Demos finds that raising the minimum wage could potentially strengthen the financial standing of Wal-Mart, McDonald's (MCD) and other companies that attract low-income customers.


It's a "misconception is that raising the minimum wage will lead to another person's loss," Catherine Ruetschlin, a policy analyst at Demos, told MSN moneyNOW. Low-wage earners "are the people most likely to spend 100% of their paycheck. Raising the minimum wage, especially in periods of weak consumer demand like now, is actually a stimulus."


Right now, Wal-Mart's core customer doesn't have a lot of extra spending money. With the baseline wage at $7.25, America's lowest-earning workers bring home just over $15,000 annually. That hasn't changed since 2009, when the minimum wage was last boosted, but the prices of oil, gas, milk and other basic goods have jumped since then, according to the National Employment Law Project. 


One-quarter of Wal-Mart shoppers earn less than $25,000 per year, and 12% of them bring home less $15,000. 


Wal-Mart hasn't officially made a statement about President Barack Obama's proposal to boost the baseline wage to $9 an hour, The Huffington Post notes. But the country's largest private employer recently threatened to leave Washington, D.C., if city officials enacted a "living wage" mandate. 


Given that many Wal-Mart customers are just barely getting by, it's no surprise that the company in August cut its annual profit forecast. Analysts pointed to the struggling low-income consumer as the reason. 


But wouldn't a minimum-wage hike boost payroll costs, leading to higher prices at the checkout counter? 


Not so much. The actual impact on payroll would translate to only 1% of the $2.17 trillion in annual sales from large retailers, Demos found. If the entire impact of a minimum wage hike were passed on to shoppers, they'd pay just 1% more for the same goods, according to the study. 


Wal-Mart and McDonald's low wages have attracted the attention of former Secretary of Labor Robert Reich, who started a petition telling them to stop being cheap.


But the bigger question facing Wal-Mart is whether it can afford a customer base with empty pockets. 


Follow Aimee Picchi on Twitter at @aimeepicchi.


More on moneyNOW

447Comments
Sep 4, 2013 4:17PM
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Raise the wage as much as they want, but do not cry when the prices go up and in reality you can not purchase any more then before for an hours work.  Those low paying jobs are not a career.  If they raise prices it will hurt the middle class workers also because they will not be getting a pay raise.

 

Sep 4, 2013 6:26PM
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If Walmart projected a better image of itself then perhaps it would attract a larger group of middle and upper class wage earners. I live in Utah and avoid Walmart whenever possible, I do sometimes have to go into the neighborhood walmart for convenience purposes and have a bad experience every time from shelves not being stocked, to searching the store looking for an employee who can help me at the deli, expired products on the shelf (velveeta cheese, expired 4 months ago, all of them!) and 1 check stand open with 6 people in line, try and go to self checkout and sure enough the packet of ranch dressing does not register on the scale and I have to wait until the ONE clerk has a chance to come fix the machine and is irritated at having to do it!.

 

Have had similar experiences at the big walmarts as well including the damn expired cheese.

The majority of the customers in walmart are trashy and rude, the clerks are not much better including the managers, rude , dumb and no help at all if you have a question or an issue. I do not

have to shop at walmart to save a penny and besides if you know your prices then you know

walmart is not all it's cracked up to be.

 

On the issue of wage, perhaps if they paid a better wage they would get a better worker, maybe the shelves would be stocked, maybe the expired velvetta would be pulled and replaced, maybe the idiot  employee walking down the aisle would know the chocolate chips are just one aisle over, etc. They are going to attract a better worker at a higher wage and thus have a better run store and more people spending money in the store.  Making it a law to have a higher minimum wage? not so sure, then you just have the same group of idiots working and collecting higher pay.  

Sep 4, 2013 6:08PM
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Why do we need to have a minimum wage hike in order to raise someone's salary? Can't the company just reasonably increase their wages over time?
Sep 4, 2013 2:44PM
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Aimee Pichi fails to see the bigger picture.  A major complaint of those who hate big corporations is how they wipe out smaller competitors.

 

If Wal Mart can weather a higher minimum wage, many other businesses still cannot.  The higher minimum wage thus becomes yet another perverse means to crush those who would compete with Wal Mart.  This is NOT CAPITALISM, but an undermining of it, an undermining of economic balance.

 

The economy of scale advantage of a big dog like Wal Mart needs to be minimized.  Thus, the cost of doing business needs to be reduced.  This means the Fed needs to stop inflating the dollar.  This means other existing laws/regulation that make it difficult for smaller businesses to survive must be repealed.  Wal Mart should be surrounded by smaller competitors ready to take it down should Wal Mart management make a mistake.  This is how capitalism should look!

 

Furthermore, if the dollar were gaining value instead of losing value, the purchasing power of all workers would increase.

Sep 4, 2013 4:59PM
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Pure liberal BS.  Higher wages mean higher costs which are passed along to the customers.  Just look at how higher food costs have been passed along to the Mac Donald's customers.  I know, I've watched prices go up since I retired 11 years ago.
Sep 4, 2013 8:35PM
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Higher minimum wages = higher cost of doing business = higher cost of goods.

 

So in the end nothing changes, those who can't afford to buy it now, won't be able to buy it after

Sep 4, 2013 6:32PM
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There are several reasons, and their rather poor treatment of their own employees is one (though not the only one), I chose to avoid shopping at Wal-Mart.  I would rather take my business elsewhere, then deal with this company.  I don't care for the way they treat their workers, and I rather hate the Wal-Mart shopping experience.  They're gab about "low prices" is not enough to overcome any of that.  Unless I'm in an emergency (late at night, nothing else open for instance), I really have no desire to shop at Wal-Mart or award them with a sale.

 

This is one customer who consciously makes the choice to avoid their store.  And their low wage policies, while also pushing their workers onto food stamps as supplemental income for what they'd otherwise pay them, does NOT make me more likely, or even more willing to shop there.  China-Mart, your corporate culture, and the general experience of walking into your stores has already left me heading out the door, seldom to return.  You don't win this customer over, playing things as usual wrt your company, and no talk of sale or whatever would bring me back in your door, either, the status quo being what it is ;)

Sep 4, 2013 2:26PM
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How are these people going to spend more money when they all get laid off from their jobs.

 

These companies are going to lay off workers and either require more of managers who get paid a salary, or automate the jobs that minimum wage earners use to perform.  

 

Either way, they will be making below the current minimum wage... $0. 

Sep 4, 2013 6:43PM
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Wal-Mart is not the story behind minimum wage increases, it's the small business that struggle to make ends meet as it is that are. We have increased expenses due to insurance, power bills, just a whole long list of operating expenses that just keep going up and up not to mention min wage. I as a small employee pay my GOOD employees as much as I can because I need them and they are important to my business and I don't want them to go. Now the employees who do just enough to get by, I don't pay them as much because of their value to me and my operations. States keep raising the min wage on us it takes money from the good employees and it goes to the not very good. You should see the looks on the faces of the hard workers when they see the others getting raises and they don't. See what we have to deal with as business owners in try to keep good help and to grow and employ more.

Government  needs to walk in our shoes for a season.

Sep 4, 2013 6:04PM
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A study by Demos?  Really??  Has anyone there ever even had a private sector job?  It's just a nest of professional community organizers with a quasi-communist agenda.

Seriously, the person quoted in the article, Catherine Ruetschlin, doesn't appear to have ever held a job in her life that wasn't a part of a non-profit, left-wing, politically-active "community" organization.  And yet she's somehow qualified to tell Wal-Mart how they should run their business?
Sep 4, 2013 11:33PM
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Walmart pays the same as ANY RETAILER. Think Sears, Target, Kmart, Macys, Victoria's Secret etc. pays any more? No, they don't. Retail is UN-SKILLED LABOR. Learn a trade or get a degree if you want more money.
Sep 4, 2013 5:23PM
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Demos found what they wanted to find and they are wrong. A minimum wage hike the likes of which Robert Reich is agitating for would cost far more than 1% at the register. Business would have to adjust pay scales to accommodate a $15.00 per hour minimum wage, workers across the spectrum would be reduced, and prices would be increased. As for stimulus, you have to assume that increased spending at the low end would be created out of thin air, that capital must come from somewhere. The only way to increase wages is to have a thriving economy, where business competes for workers, and makes investments in competitive enterprise.   
Sep 4, 2013 7:09PM
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OK if 2 million people work at walmart just for round numbers and its what was projected for 2012. It would only cost them $166 to raise min wage to $12 (a $4.75 raise for all 2 million) for each worker at 35 hours because that's what they do so they don't have to pay for health coverage. So that 166 x 2 million = 332.5 mil. Now take the 17 billion just in PROFITS in the last 12 months according to NYSE on MSN they still have 16.667 billion in PROFITS.
Where is the f'in problem?
Grow up capitalism, you big dogs whine too much!!!
Sep 4, 2013 6:30PM
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Most of the growth of Wal-Mart happened under the guidance of Sam Wall.  His credo was but American and pay your workers just compensation.  Wal-Mart bloomed from one store to over a thousand in just 10 years.  After Sam died, his children took over and their credo became "greed".  More profits lower wages and break the rules to build more stores.  Raising the minimum wage may hurt Wal-Mart for a time but in the end, if the board is willing to make changes, business will resume to normal.  The economy will not suffer, some pangs in the beginning, but will steady out as other businesses follow suit.  More taxes, FICA, and Medicare will help the deficit.  Pay your people more and they will spend more.  Every one will benefit.
Sep 4, 2013 6:38PM
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Every company like Walmart uses that tired old excuse, "Paying our employees more would financially ruin our business." I say, B.S. Just look to the family that owns Walmart.  Look at the houses they live in and all the stuff they have.  It's the same thing with the company I work for.  I googled the owner's address and he has a house the size of a football stadium on hundreds of wooded acres.  His family is also involved in a pretty pricey sport.  If they paid their employees more, they might have to live without a few of their toys and vacation homes; boo-hoo!
Sep 4, 2013 5:14PM
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Raising minimum wage will never hurt big companies and high unit price smaller companies like pricey steak houses or high end Restaurants.

 

However for a small business it will death blow. A 20-25 % rise in wages will hurt him because he have much less flexibility in terms of price and attracting more customers. Their gross margin will be under pressure.

 

Now talk about $ 15/hour some demanding. If it is o happen, main streets will be deserted except of fast food, chains, dollar stores and likes. But independent operators are done and may liek to work at Fast food place

Sep 4, 2013 9:39PM
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Why do we need a minimum wage hike ? Because our government is borrowing to much money and buying it's own bonds to pay for it.( This is the same as printing more money) No additional goods or services are produced, so we have more money chasing the same goods. This causes prices to rise, so people think the minimum wage should rise. The only group that profits from a minimum wage hike is the government. This is because taxes are indexed. When you make more you pay a higher percentage to the government. But, because no goods or services are produced the purchasing power of your increased wages actually goes down. This is why you could buy more when the minimum wage was $ 1.25 then you can today with a wage of $ 7.45 an hour.  Because people don't understand this they blame Big Business, Immigrants, people on welfare, greedy rich people, _______________ fill in the blank with your own boogey man. You could raise minimum wage to $ 1000.00 an hour and if nothing more is produced the prices will just go up, there will be no benefit.
Sep 4, 2013 6:43PM
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I over heard an employee talking by 2016 they want to have mostly temps yeah that's right temps work them 180 days and show them the door it's no wonder this country is going to ?ell in a hand basket the common person can't get ant where with crap like this and it not just Wal-Mart I know of another company that's doing the something but there keeping them on temp some of this workers have been there for 2 years and still on temp and no pay increase just goes to show the little man can't get any where the way I look at it temps should be outlawed!!!

Sep 5, 2013 12:45AM
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Raising the minimum wage hurts the middle class.  But what else is new?  The middle class gets thrown under the bus on everything.  Let see, the middle class has to deal with health insurance, house prices, predatory banking, gas prices, food prices, raising taxes, car insurance, inflation, losing hours/pay at work, etc.

One political party fights for the poor, enticing all to become poor on the back of the middle class.  The other political party fights for the wealthy on the back of the middle class...  And we wonder why the middle class is not growing!?!

How about we focus on some policies that actually help the middle class for a change?
Sep 4, 2013 5:55PM
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17 billion dollars in profit!!!!! Take 5 billion and give it back to the associates,....ouch that'll hurt real bad, HUH!!!!!!!! In 5 to 7 years I believe Walmart will be gone...........
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