I’ve bashed really big, cash-rich corporations for not paying a livable wage, and offered up some alternative retailers/restaurants that are paying a livable wage. Americans should not settle for pay of less than $10.
Apparently, Walmart now agrees. And I’d like to give them some credit.
Walmart is giving a pay increase that will raise the floor pay for its full and part-time associates to a minimum of $9 per hour in April and $10 per hour next year.
You can question the purity of the motives (fear of employee unionization, employee protests, getting ahead of an inevitable federal minimum wage hike, etc. – all have been speculated), but I give them credit for proactively making a move that is ultimately great news for ALL low wage workers – not just Walmart employees.
Walmart is, by far, the largest private employer in the United States, with 2.3 million employees. This will raise the income of 500,000 of them. The move, in a way, sets a new median low bar for low wage retail and restaurant workers.
Think about this: let’s pretend you are standing in front of a 150 degree Fahrenheit deep-fryer at a McDonald’s across the street with scalding hot grease flying at your eyeballs or braking your back unloading boxes at a Target a few big box stores down the road, and you are making the federal minimum wage of $7.25 per hour – why the hell wouldn’t you at least put in an application to work at Walmart and get a 38% pay hike?!
If Best Buy, Burger King, or even McDonald’s had made this move first, not many would follow. Walmart making this move raises the low bar for everyone because other companies will (hopefully) feel the pressure to follow suit to avoid mass deflection and turnover.
Walmart’s stock sank 3% on the news (the projected expense of the wage increase is over $1 billion), however, I think investors and the company itself will find that the move will pay long-term dividends. Just think of all of the benefits that will be gained by Walmart:
- ability to attract better employee talent, which leads to more productivity and customer satisfaction, which leads to higher profit margins
- higher retention, which results in significant cost savings for having to hire and train new employees
- better public relations and less time, money, energy spent on fighting unionization and employee protests
- more of your 1.3 million employees can afford to buy your product
And perceived shareholder value in investing is all relative. Target, for example, might have slightly lower employee costs after this move right now, which may offer a short-term relative stock gain, compared to Walmart. However, it is now inevitable that they will have to boost employee pay as well. When they do, the stock prices will adjust.
Worried that the wage increase will raise the cost of your cheap Walmart goods? It’s been estimated that even if 100% of a $10.10 minimum wage increase was passed on to consumers (very highly unlikely), the average impact on a Walmart shopper would be 1.1% of prices ($0.46 per shopping trip).
Now, we can argue about whether $10 an hour is truly a livable wage (there is “living” and there is “thriving” – and $10 does not allow someone to thrive) – but lets save that for another day.
For now, a tip of my hat to Walmart for raising the low bar for those who need it the most.
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This is a great move on Walmart’s part. I don’t understand how some of the most profitable companies in the world (McDonald’s) could pay their employees less than $10 an hour.
Executive compensation is mostly equity shares these days and most executives want to get in and get out quickly. Therefore, they only consider short-term impact of the decisions they make, in order to boost the value of their shares. Long-term benefits are rarely, if ever, considered. Shareholders do not like increased costs, even if it’s a tiny sliver of overall profits, so moves like this do have a negative short-term impact (even if positive in the long run).
The only problem with this is that it just further increases inflation and costs of goods each time wages are raised so no one is really getting ahead. I know you said it’s only a 1 cent increase, but that only until wages are increased everywhere else too and someone has the bright idea to raise costs of goods so they can make more money since employees are making more money now too.
I don’t think it’s a problem. If our grocery bill raises $0.03 cents a month, I think we will be able to absorb it. Meanwhile, millions of struggling families will get a 38% increase in pay. The cost of goods argument does not really play out well when you look at the numbers.
I don’t really think the impact will be that small on the over all budget. While I would like to also think it should be minuscule to any other expenses they have… They squeeze every cent they can out of payroll already to put a few extra dollars on the books for shareholders… When they can’t keep adding shareholder value prices will increase to cover their costs….
I agree Walmart is huge and can absorb some costs.. the question is will they really do that at their own expense?? I worry about all of the other smaller companies who will have to increase wages just to keep up with the “Walmarts” in order to remain competitive in the work force and retain employees… Their budgets will be more impacted and their pricing will have to increase at these smaller retailers and “mom and pop” places and they will start to push an impact from that side of the table..
It is a dirty cycle that continues to present itself… increased wages… increased expenses passed on to consumers to cover higher wages…. Increased wages eventually leads to decreased purchasing power… I would take 1980s pay for my job… in trade for 1980s pricing on the stuff I buy ANY DAY!!!
Many of us know the reality that people just need to learn to cut back and live within their means and stop buying crap that they don’t “NEED” but they buy it because they “WANT” it..
“It is a dirty cycle that continues to present itself… increased wages… increased expenses passed on to consumers to cover higher wages…. Increased wages eventually leads to decreased purchasing power… I would take 1980s pay for my job… in trade for 1980s pricing on the stuff I buy ANY DAY!!! ”
We have WAY more purchasing power today than at any time in history as cost of goods sold has been driven down. If you think the 1980’s was better, show some data. I don’t think that’s the case at all but if you can find some objective data, please share. Meanwhile, inflation adjusted wages for those at minimum wage HAS gone down over time. These are the folks that will benefit the most. That this was AT WILL is a beautiful thing. What is there to complain about? A $2.99 cent box of Kraft mac n’ cheese vs. $2.98? Give me a break.
False information spread by Economic Conservatives. First off, right now, enemy #1 in America is DEFLATION. That’s why the Fed kept QE for so long, and why it has hesitated to raise rates. Falling inflation means prices drop for everyone, which means wages drop.
Wages drop, people buy less. People buy less, prices drop. Prices drop, producers produce less. Producers produce less, people lose jobs. People lose jobs, people buy less… Need I go on?
This continues into an economic Death Spiral. It’s how the Great Depression started (Give Grapes of Wrath a read, it’s a good novel that includes elements of Economics in it).
The minimum wage pulled the US out of this Death Spiral by creating inflation in prices, putting money back into the hands of consumers, and spurring purchasing, which is also what rejuvenated the economy in 2009/2010.
Those who are against the minimum wage only think about their own costs (Oh no, I’ll have to pay 1 cent more for a banana!!!). They are economic purists. But low levels of inflation are FAR easier to handle than deflation, and it’s what keeps your wages going up every year. And for you economic purists who only look at supply/demand charts: You don’t see that the demand can drop if money is being funneled to the upper class. There are advanced theories you’re ignoring that you didn’t pull from your Econ 101 class.
As a final argument: I’m sure many on this thread work in jobs where they see a 2-3% raise every year to keep up with inflation. However, those at the very bottom of the economic pyramid in the US haven’t seen wages increase since 2009, when the minimum wage was last increased. Our politicians should be ashamed, when they give themselves their own wage increase every year.
Chain the Minimum Wage to CPI, and be done with all this endless infighting between politicians. Let’s stop this argument and give people a wage that allows them to purchase goods and keep the economic engine going, instead of funneling money into executive pay.
Thanks for the article, GE. I love your moderate political/economic views, and only wish everyone could see the Middle Ground.
What are your thoughts on how this will affect other employees making just over current minimum wage. I would think those people would expect to scale up accordingly, and not make the same new minimum wage as the others. A trickle up effect increasing everyone’s salary?
Not necessarily a bad thing, but possibly make the overall cost of goods increase higher
Yeah, it could raise the bar for them as well.
I mean, if it scares you that much – buy one less frozen dinner, or Snapple over the course of the next year. =)
Literally, the impact of this should be far less than that even if everyone raised wages to $10+.
I personally can’t see this as a good move. A higher minimum wage won’t necessarily improve jobs, it will eliminate them in the long run and doesn’t put anyone ahead.
Do you think that corporations will be willing to pay 38% more to an employee who hasn’t made any improvements or hasn’t acquired any better skills? Why should they earn more? Wages should be dictated by simple supply and demand.
“Americans should not settle for pay of less than $10.”
If people don’t want to settle for less than $10 then why not EARN it?
There are a lot of things going on here, but the most obvious issue with your statement is that Walmart is doing the wage increase voluntarily, so who’s to say the workers haven’t earned it? As you’ve shown with your statements, you believe that the market “decides”, so isn’t this a perfect example of the market deciding that these workers are worth more?
Second, the research on the minimum wage is unfortunately very divided, but the minimum wage right now is so low compared to what it’s been historically that it might not even be binding at this point. In fact, I think Walmart’s move is a great indication that it’s not binding at all and that the market wage is above the minimum.
In general, it’s worth remembering that the “free market” isn’t some nebulous thing that makes perfect decisions. It’s whatever we collectively decide that it is. Some of these confines are now widely accepted: we’ve decided that slave and child labor aren’t accepted components of our free market. However, this also applies on other levels. We decide if monopolies are legal (Comcast, electric utilities, etc.) or illegal, and we decide if polluters should pay for their actions or not. There are millions of examples of how we change the market, either correcting deficiencies or constraining it for one reason or another, so that it more perfectly reflects our laws and values. And if we decide that there’s a minimum amount that someone should get paid for an hour of work and decide that the benefits outweigh the costs, then I really think we should be able to make that choice.
Great points well said, Guillermo!
I’ve been reading this blog for a while now and am very disappointed in the fact that G.E., someone who I thought understood finance and economics, could make an argument like this. As Guillermo said, it is simple supply and demand. I literally learned this within my first week in ECON 101. (Just using the theoretical $7 and $10 wages)…If people thought working for $7 an hour wasn’t worth it, they wouldn’t and supply would decrease and naturally drive the wage employers paid up, say, to $10 an hour. However, when there are people willing to work for $7 an hour, but now there is an artificial floor put on wages of $10, there are way more people (supply) willing to work for $10 and hour than employers (demand) willing to pay them that. The difference between this is UNEMPLOYMENT. Who does that help? Do you think the guy who was willing to take $7 an hour would rather be unemployed because now his employer can’t keep him on for $10 an hour?
http://doe.state.wy.us/lmi/mw/images/figur3.gif
The other valid point that has been made is that its not 1 cent on a $16 item (would like to see where you got that data) – its significantly driving prices up, increasing inflation and making that $10 an hour really only buy what $7 an hour would have bought before. Then it also hurts middle class workers who now have to pay more for the same goods without a bump in their pay. Just all around horrible policy made by liberals who think they are doing good for people, but are really just hurting the economy.
Even if you go the philanthropic route as people like to make in their arguments, remember that a lot of these workers aren’t
“supporting a family”, they are teenagers or college students just earning a little extra money. AND even if they ARE “supporting a family”, read Mr. Money Mustache’s blog about how EXTRAVAGANTLY he, his wife, and his child live on $25,000 a year. You can support yourself on a lot less its just the fact that Americans have become so used to a NEED being cable TV, granite countertops, 2 gas guzzling SUVs etc. etc.
I’m very disappointed your comment is so uninformed, Alyssa. Here are some facts for you:
1. 88 percent of those who would benefit from a minimum wage increase are age 20 or older, and 55 percent are women. (http://www.dol.gov/minwage/mythbuster.htm)
2. A review of 64 studies on minimum wage increases found no discernable effect on employment. Additionally, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in support of raising the minimum wage to $10.10 by 2016. (http://www.dol.gov/minwage/mythbuster.htm)
3. On the Walmart price increases – it appears Bloomberg updated their post, so I’ve updated mine w/ a link to the research – even if 100% of the wage increase was passed on to consumers (very highly unlikely), the average impact on a Walmart shopper would be 1.1 percent of prices. http://laborcenter.berkeley.edu/pdf/2011/bigbox_livingwage_policies11.pdf
4. You act as though a higher min. wage is strictly a democratic initiative. In fact, 76% of Americans support it (including over half of Republicans): http://www.gallup.com/poll/165794/americans-raising-minimum-wage.aspx
And many Republican led state legislatures have raised minimum wages. If only everything was that bi-partisan!
5. You paint a generalization that every low wage earner is a wasteful spender. Yeah – I’m sure minimum wage workers are just bathing in the extravagance of cable TV, granite countertops, 2 gas guzzling SUV’s versus struggling to pay rent, feed their families, or heat their apartment in winters. Get real. Just makes you sound like a hater.
All of what you said assumes this was a forced action. It was not. They did it for the benefit of their business so that they could better attract/retain good employees. Walmart is a smart business, and this was a business decision. That’s the free market, in action. Would you rather see a mandated minimum wage increase for all employers? You should be gleeful that this was voluntary!
IMHO, when given opportunities for stupidity, too many of these low wage workers will take that path. While Walmart puts up B&M, usually with tax abatements, on the company dime, the restaurants sector has switched over to mainly a franchise model. So capital has to come to the table and a plan that will make both side successful. Once the doors are opened, what is spent on labor depend on sales, usually as a percentage. A franchisee is risking his or her wealth, money borrow from others and perhaps a bank and still is obliged to make regular payments to franchise provider.
If these small business owners are faced with this liberal bs, their CPA and financial advisor might say there are better ways to invest and grow their money. With a decline of franchisees, McDonalds and Burger King management could either go with robots or continue to grow their international markets.
In regard to better pay get better help, the federal government screwed that up years ago. A business hires someone who has employment difficulties, lives in a poor area and even a vet and the feds will provide various tax breaks. I’m yet to learn of one employer offer to share any of this tax savings with a new hire.
Hehehe. I for one appreciate the Comcast jab. Way to go, GE..
I was mildly surprised at hearing this but like you said it could have been done to combat the possibility of a worker’s union. I’m sure it wasn’t out of the goodness of their hearts. I agree I think other retailers have to follow suit at some point.
I was quite surprised about this move. It’ll be a little tougher for companies like McDonald’s to follow suit, though, considering 80% of their restaurants are franchised.
Would had loved to be a fly on the all when that was being debated in the boardroom.
You know things got heated.
Cheers!
Sadly, too many Americans have a disdain for the working poor. They think the working poor are a bunch of lazy slugs who don’t deserve to have a decent life. That mindset is embarrassing and shameful. The working poor are doing jobs that many Americans are “too good” to do. Don’t believe me – ask the employers of “illegal” immigrants. I have nothing but respect for a person who will clean gutters, pick tomatoes, repair roofs in 100 degree weather, clean toilets, and take food orders from obnoxious customers to simply feed their families. There is honor in all work and a worker should be offered a liveable wage. Who cares if my grocery bill increases by $1? At least my fellow Americans will be able to have a better life. Get with it, people! Stop being so damn selfish. We are blessed beyond measure. Stop hating on the less fortunate. They are just as important as the highly fortunate.