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Always low wages? Walmart might have choices

By Barry Ritholtz
Bloomberg View

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Employees of Wal-Mart Stores Inc. and McDonald’s are often the largest recipients of aid in their states.

McDonald’s recently found itself in the spotlight courtesy of its “McResource” line — the company program that helps its poverty-level, full-time employees enroll in various welfare programs. A recording of that McResource line sparked outrage, driving this issue into public view.

More recently, Walmart’s holiday public-relations headache began when a Canton store decided to hold a food drive for needy local families for the holidays. What made this a PR nightmare was that the needy families were full-time Walmart employees who were working in the store holding a food drive.

Walmart is the single largest private employer in the country; McDonald’s, the largest fast food chain. So, what should it mean to be employed full time in America?

Should taxpayers be supplementing the salaries of these often minimum-wage workers at large profitable firms?

What would it mean if higher salaries were mandated by an increased minimum wage?

Walmart has 2.2 million employees, including 1.3 million hourly workers. It employs 1.2 million people in the U.S. alone. Gross revenue is $475 billion, generating profits of $17.2 billion. It dominates the discount retail space, and according to Bloomberg, has a 66.70 percent market share.

The size of Walmart is sometimes difficult to visualize. To put it into some context, consider the following: 100 million shoppers patronize Walmart stores every week. Walmart has twice the number employees of the U.S. Postal Service, a larger global computer network than the Pentagon, and the world’s largest fleet of trucks. Americans spend about $36 million dollars per hour at the stores. Walmart now sells more food than any other company in the world, capturing one of every four dollars spent on food in the U.S. The average American family of four spends more than $4,000 a year there. Each week, it has 200 million customers at more than 10,400 stores in 27 countries. If the company were an independent country, it would be the 25th largest economy in the world.

Given the sheer size of Walmart, how it pays “associates” is likely to have an outsized impact on their local and state communities, according to a number of studies.

Walmart’s low wages have led to full-time employees seeking public assistance. These are not the 47 percent, lazy, unmotivated bums. Rather, these are people working physical, often difficult jobs. They receive $2.66 billion in government help each year (including $1 billion in health-care assistance). That works out to about $5,815 per worker. And about $420,000 per store. But the federal and state aid varies widely; in Wisconsin, a study found that it was at least $904,542 a year per store.

Why do we effectively want to subsidize a private company’s employees? Wouldn’t it make much more sense to raise the minimum wage to a level that a full-time worker could support the average American family of four? Just $11.33 puts a 40-hour employee over the poverty line. The costs of this increase would be borne by the company and its consumers — not the taxpayer.

Perhaps the most ironic aspect of this are the advantages to the retailer of higher associate salaries. Some stores have discovered that raising wages provides a competitive advantage. Retailers such as Trader Joe’s and Costco pay significantly more than their giant competitor. At Costco, employees earn 40 percent more than at Walmart’s Sam’s Club. Average employee wages at the warehouse retailer are $21.96 per hour, and most of Costco’s U.S. employees are eligible for benefits.

The “underinvestment in labor” is part of the reason Walmart has such enormous turnover. Estimated as high as 70 percent, the retailer incurs enormous costs for recruitment, administration and training.

A Harvard Business School study found higher wages decreased employee turnover, increased morale, and improved customer satisfaction ratings. This adds up to increased sales and improved profitability.

Can Walmart afford to increase employees’ salaries? The retail giant does $474.88 billion a year in sales; across their 2,200,000 employees, that nets out to $213,255 sales per employee. Given a 5.93 percent operating margin, that nets out to $12,646.02 profit margin per employee. Adding $3 per hour per full-time employee would consume almost half of that profit. But that’s before any potential increase in productivity, reduced turnover costs and higher revenues.

The question is not whether Walmart should increase wages to capture these benefits. That is a business decision for the owners and management. Rather, the issue is whether we as taxpayers should be funding private companies paying below-poverty wages. My view is we should put the full costs of shopping at Walmart back where they belong: On the customers and the company itself.


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