Wal-Mart got a lot of praise for voluntarily raising its minimum wage to $9 last April.
It seemed like a model for other corporations and was hailed as a benefit for Wal-Mart employees, whose minimum wage will rise to $10 this year. But it's not such a good deal for the 10,000 Wal-Mart workers who will be laid off when the nation's largest employer closes more than 150 U.S. stores. Their new minimum wage: 0.
Andy Puzder, CEO of CKE Restaurants, explains in today's Wall Street Journal how the minimum wage hike played into Wal-Mart's decision to close these outlets. A company must ask of underperforming locations whether the company would be sounder if that location were closed. Higher labor costs can result in a location's being economically unfeasible to continue.
Every retailer has locations that are profitable, but only marginally. Increased labor costs can push these stores over the line and into the loss column. When that happens, companies that want to stay competitive will close them. That’s one of the reasons that substantially increasing the minimum wage poses real risks for working-class Americans.
This reality apparently came as a surprise to “Making Change at Wal-Mart,” a union-backed group that has heckled the retailer to raise its entry-level wage. After the closure announcement, the outfit warned in a news release that this “could very well be just the beginning” and that it sends “a chilling message to the company’s hardworking employees that they could be next.” Yet many of the job losses are the direct result, to borrow the outfit’s branding, of making change at Wal-Mart.
Let’s look at Oakland, Calif., where the minimum wage is $12.55. When Wal-Mart opened there in 2005, about 11,000 people applied for the 400 positions. Those jobs will soon be gone, as the Oakland store is on the closure list. While Wal-Mart declined to address the details of its decision, City Councilman Larry Reid told the San Francisco Chronicle that Oakland’s minimum wage “was one of the factors they considered in closing the store.”
Unfortunately for Washington, Wal-Mart has cancelled plans to build two stores here. The minimum wage is currently $10.50 an hour and will go to $11.50 in July. It could rise to $15 if a ballot initiative passes in November. Labor costs were a big factor in Wal-Mart's decision not to open the new outlets:
Councilman Jack Evans, who sits on the district government’s finance committee, reported, according to the Washington Post, that in closed-door meetings Wal-Mart “cited the District’s rising minimum wage”—as well as proposals to force employers to provide paid family leave and a minimum number of hours for hourly employees—as a reason to pull out. “They were saying, ‘How are we going to run the three stores we have, let alone build two more?’ ” Mr. Evans said.
Mayor Muriel Bowser said she was “blood mad” about the store cancellations, but she shares the blame as a proponent of raising the minimum wage. Perhaps she understands this better than she lets on, as she has declined to endorse the proposed increase to $15.
We obviously want people to earn good livings and have benefits. But we also want them to have jobs and unrealistic minimum wages result in too many people having the minimum wage of zero.