In February retail giant Walmart announced that it would raise its minimum hourly wage to $9 in April and to $10 by February of 2016. This affected around 500,000 employees. We praised Walmart for raising its wage voluntarily, thus perhaps making further government intervention into the workplace less likely .
At the risk of being the kind of person who regards advertisements as high art, I have to say that I love the Walmart ad about their wage hikes. The people in the ad look like hard-working Americans who don't get a medal but nevertheless dedicate themselves to supporting their families.
How's it working out? Andrew B. Wilson writes in the Weekly Standard:
In announcing the company’s third-quarter results on November 17, McMillon acknowledged that the wage hike had been “by far the biggest driver” of a 13.3 percent reduction in corporate earnings over the first nine months of the fiscal year ending on January 31, 2016. Higher wages have added $1.2 billion in annual costs this fiscal year and will add another $1.5 billion in costs next year.
Net income at Walmart hit an all-time high of $17 billion in calendar 2012 (fiscal 2013, ending on January 31, 2013). According to Value Line estimates, it will drop to $14.8 billion at the end of this year and to $12.6 billion next year, which would be the lowest annual earnings for Walmart in a decade.
That is no big deal to critics like Robert Reich, who served as secretary of labor under President Clinton. Reich pointed to Walmart and McDonald’s in a petition that he launched on MoveOn.org in 2013 urging the biggest employers to increase wages so workers can finally “get a fair share in this economy.” “Your typical employee is now earning $8.25 to $8.80 an hour,” Reich wrote. “[Walmart and McDonald’s] can easily afford to pay [workers] $15 an hour without causing layoffs or requiring price increases.”
But regarding any profit as proof that a company can afford to pay more to its workers—without harming its customers—disregards the realities of a competitive marketplace.
Walmart shares have lost a third of their value since the beginning of the year. A lot of these shares are in the portfolios not of 1 percenters but of ordinary Americans who see them as the bedrock of their retirement. The economic state of the company hampers job creation and makes it likely that the costs of doing business will be passed onto the consumer.