Walmart: Raising Base Wage Draws Better Workers

South Dakota business owners predicted a variety of problems would arise from the voters’ 2014 decision to raise our minimum wage from the federal $7.25 per hour to $8.50 plus annual cost-of-living increases. Empirical data from South Dakota and elsewhere indicate no discernible economic harms from recent minimum wage hikes.

Reinforcing the economic case for raising the lowest wages is Walmart. The mega-retailer raised its starting wage to $10 last February. Walmart’s operating costs are up 8%, but sales are up 3% and earnings are up 12% while Target and other retailers struggle. Walmart is contending that higher base wages are a net benefit for the company:

A Walmart executive told CNNMoney that customer service scores have improved since the raises went into effect. Workers are more enthusiastic — and the pool of applicants for new jobs is strong, in part because of the higher wages [Paul R. La Monica, “Americans Are Shopping… at Walmart,” CNNMoney, 2016.08.18].

Of course, Walmart pads its profits with its long-standing practice of reducing staff and shifting costs to the public sector:

Retail consultants told Time that Walmart likely has about 400,000 fewer workers in the U.S. today than a decade ago. In giant stores that can range up to five acres, that translates into one worker for every 524 square feet of retail space — a 19 percent decrease in workers per square foot from 10 years ago. The greeters at the entrances are gone, many cashiers have been replaced with automated checkout scanners, and there are simply fewer eyeballs monitoring everything than before.

That all proved beneficial for Walmart’s bottom line, as sales per employee grew 23 percent over that same time period. But just like some Walmart detractors accuse the company of relying on government aid programs to subsidize its workers, critics say Walmart is skimping on security and implicitly farming the cost out to publicly-financed police forces [Jeff Spross, “Why Criminals Flock to Walmart,” The Week, 2016.08.23].

Giant corporations like Walmart should hire enough people to tackle the problems they bring to their communities. But at least Walmart is recognizing that paying better wages results in better workers.


16 Responses to Walmart: Raising Base Wage Draws Better Workers

  1. 5 more bucks an hour and you will see even more professionalism. When did we decide that 10 bucks an hour does anything more than make you even with your expenses. $400 bucks a week is $20,000.00 a year in net earnings. Take off the cost of health insurance along with standard deductions and you are left with a living wage, not a wage that you can see yourself progressing and that is why they are always short handed in their stores. Anyone have any clue what childcare costs are these days? How about the cost of driving your jalopy? Rent and utilities are skyrocketing, and yet we feel that 10 bucks is the absolute target in today’s market. Wrong headed thinking, you have to make enough to be a customer. Henry Ford, the old Nazi sympathizer understood that and paid his help enough to enjoy the American dream.

  2. Don Coyote

    @jerry: “Henry Ford, the old Nazi sympathizer understood that and paid his help enough to enjoy the American dream.”

    That story is a myth. Henry Ford paid his workers more in order to cut turnover and training costs. Good article at Forbes debunking this myth.

    http://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/#3a9a808a1c96

  3. Costco’s habit of paying their workers above average wages is well documented, and my experience in their store has shown that a few extra dollars in salary translates to better and happier employees.

    So Walmart might have found that paying their workers better attracts a better worker, but as long as the competition continues to pay more, the competition will continue to attract the best workers from the pool of candidates.

  4. Unfortunately, some South Dakota employers haven’t figured this out yet. Take Trail King for instance: a company that pays less in SD than skilled welders can earn elsewhere, then takes to the press to complain about its own employees.

  5. Nope Mr. Don, his move helped to create the middle class that could then afford the Model T and a better standard of living. Ford did o
    love him some Hitler though as he had a real dislike of Jews.

  6. Don Coyote

    In 1913 Ford’s factory workers would have been considered working class not middle class and boosting 14,000 workers wages would hardly contribute much to creating a middle class (which already existed) in a population of nearly 100M. So pfiff goes your theory. It also looks like you forgot to read the linked Forbes article. If you had you would have read this:

    “It should be obvious that paying the workforce an extra $9 million so that they can then buy $7 million’s worth of company production just isn’t a way to increase your profits. It’s a great way to increase your losses though.”

  7. I did indeed read the opinion of Mr. Tim Worstall, then I read the article that I got my information from, NPR. You know, I like those facts better than opinions from Forbes.

  8. All Things Considered, dated 1/27/2014 by Sarah Cwick from NPR

  9. Higher wages cut turnover and training costs, says Henry Ford—that’s good enough for my argument on minimum wage. Thanks, Mr. Ford!

  10. Don Coyote

    @cah: “Higher wages cut turnover and training costs, says Henry Ford—that’s good enough for my argument on minimum wage. Thanks, Mr. Ford!”

    These are “minimum wages” being set by the marketplace not the government. But even still, the central argument against mandated minimum wage that hours and jobs will be cut is illustrated by Wal-Mart cutting 400,000 jobs in the last decade as their labor costs have increased. While Wal-Mart employees who retained their jobs can celebrate their new income, those who lost their jobs or had their hours reduced probably aren’t so happy.

  11. Then why are they hiring? Go to Sam’s or Walmart and see the help wanted, or check out the labor site from the state. Don, you are yesterday’s news.

  12. Roger Cornelius

    Regardless of the hourly rate Walmart pays its employees, they are still cheating them.
    Walmart considers 35 hours a week full-time and 20 hours a week part-time. Our economy for years has been built on a 40 hour work week.
    Some Walmart employees may be happy having 5 hours a week to goof off, but I’d bet most would like to work and get paid for full-time at 40 hours a week.

  13. The problem with the new wage is that it is not enough to sustain yourself or your family, if you have one. You are eligible for food stamps with these wages, you are eligible for housing assistance and other subsidy’s. So the base rate needs to be higher to offset life’s daily issues. Here is where our military is on this same subject http://thedailyvoicenews.com/2016/05/08/veterans-military-families-among-those-using-food-stamps/
    Can it be safely said that to not raise current wages even further does not make any sense whatsoever in raising the standard of living for all? 15 bucks an hour is where this needs to be and it needs to be done very quickly. There is to much of a gap between the haves and the have nots and that is dangerous to democracy. Skilled workers also need a much needed raise, it is long past time.

  14. Here is the danger of not increasing the wages, a recession of huge magnitude. http://www.bloomberg.com/news/videos/2016-08-22/retail-to-feel-pinch-of-1-3-trillion-student-debt

  15. “the central argument against mandated minimum wage that hours and jobs will be cut is illustrated by Wal-Mart cutting 400,000 jobs in the last decade as their labor costs have increased”

    This is only illustrated if you are unable to think critically. Don’t think for a second that Walmart has cut 400,000 jobs in the last decade due to rising labor costs. What they have done is found ways to eliminate many jobs via automation in their warehouses and logistics departments. They have transitioned into late night stocking that allows more efficient movement of materials. They have also outsourced to external firms in their warehouses so those employees don’t appear on the Walmart payrolls, but they are still handling Walmart products.

    Walmart isn’t slashing jobs because of some minor wage increases – if they need the people, they need the people. Plus, Walmart has themselves agreed to raise their minimum wages above and beyond what the federal minimum wage is, thus if they felt rising labor costs were going to be an issue, they likely wouldn’t have bothered. However it appears even Walmart realizes you get what you pay for to some degree.

  16. Don Coyote

    @Jerry: “Then why are they hiring? Go to Sam’s or Walmart and see the help wanted, or check out the labor site from the state”

    There’s a plethora of reasons why Walmart is still hiring locally.

    1) A 3.3% unemployment rate means a small pool of eligible/capable workers.

    2) People leaving the job market such as retiring baby boomers, shrinks the labor pool further.

    3) Expansion by Walmart in the market. Two new stores in the last two years in Sioux Falls

    4) Expansion in the entire retail market in Sioux Falls with the addition of two Aldi grocery stores and an additional Fareway not to mention the countless restaurants that have opened in the last two/three years.

    5) Normal churn in the job market. Since everyone is essentially paying market minimum in Sioux Falls, the benefits that typically come from paying higher wages are diminished by not paying a higher wage relative to other companies.