Wal-Mart Will Raise Minimum Wage: How Should We React?
2014: A Rough Year
Last year wasn’t an easy one for the world’s largest retailer. Not only did Wal-Mart tie for last place in the American Customer Satisfaction Index for department and discount stores, but it has also been criticized for underpaying and over working employees, being anti-union, and has been described in a slew of colorful derogatory terms. This year alone, the company has come under fire for imposing stricter uniform guidelines (which the employees are expected to buy), cutting health care for about 30,000 part-time employees, and slacking on their donations to charity.
Wal-Mart’s Best Friend: The Press
Gawker Media Group wrote a series called ‘Life at Wal-Mart: The Workers Speak, Surviving on the Inside, and Welcome to Hell’; The Huffington Post wrote an article called ‘How Wal-Mart’s Low Wages Cost All Americans, Not Just Its Workers’; MarketWatch wrote an article called ‘4 reasons Wal-Mart is the most-hated retailer in America’; and the list goes on. To top it all off, the company has been featured on Russell Brand’s YouTube show, The Trews, and the outspoken comedian turned news enthusiast is not shy in letting people know his opinion on the company. He devotes an entire episode (How Can We Confront Walmart?) to discussing his eye-opening views. With all of this negative press, it seems as though Wal-Mart’s reputation has become increasingly negative.
The Silver Lining?
While it is easy to focus on the bad, especially when that’s all that seems to be reported about the company, Wal-Mart does have a unique role in not only shaping the retail industry, but also the business world as a whole. Because it is the largest company in the world and employs over a million workers in the US, it makes sense that its every action is analyzed under a microscope. While this hasn’t been the best thing for it in recent years, it does mean that when it does something good, not only will people talk about it, but it has the potential to produce significant changes that would affect millions of people.
One Action, Many Opinions
On February 19, 2015, Wal-Mart announced that it plans to raise the salary of 500,000 of its lowest paid workers, first to $9 dollars an hour and then to $10 dollars an hour by 2016.
The Optimist Pro-Wal-Mart View: This raise may not add more than an extra 50 cents per hour for many workers, but it is definitely a step in the right direction. This raise will hopefully create a ripple effect and encourage other companies (especially fast food) to also increase their wages. TJX Companies has already announced that it will also be raising its minimum wage to $9 dollars an hour by June, and $10 dollars an hour by 2016. Another plus to this decision is that, “Paying workers better will lead to reduced turnover, better morale and higher productivity” (Paul Krugman). Wal-Mart seems to have been listening to the criticism and is finally doing something about it. Kudos to them.
The Optimist Anti-Wal-Mart View: In Paul Krugman’s Op Ed for the New York Times: ‘Walmart’s Visible Hand’, he points out that what Walmart is doing is a good thing. But, it is no secret that many of the employees are on food stamps and receive Medicaid. He argues that Wal-Mart should,
“Raise minimum wages by a substantial amount; make it easier for workers to organize, increasing their bargaining power; direct monetary and fiscal policy toward full employment, as opposed to keeping the economy depressed out of fear that we’ll suddenly turn into Weimar Germany. It’s not a hard list to implement — and if we did these things we could make major strides back toward the kind of society most of us want to live in.”
Basically, in simplistic terms, those with this belief view this as a step in the right direction, but much much more needs to be done.
The Pessimist Pro-Wal-Mart View: There are many that think an increase in minimum wage will result in higher overall costs, a decline in the number of jobs available, and that it isn’t Wal-Mart’s responsibility to increase wages for a job when the person knew how much they would make when they accepted the job. The premise of this argument is that if we increase minimum wage, the rest of the economy will be negatively affected. But according to Krugman, this simply isn’t true. In the study: Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties, by the Institute for Research on Labor and Employment, the co-researchers found that,
“For cross-state contiguous counties, we find strong earnings effects and no employment effects of minimum wage increases…How should one interpret the magnitude of the difference between the local and national estimates? The national level estimates suggest a labor demand elasticity close to -1. This implies that an increase in the minimum wage has a very small impact on the total income earned by affected workers. In other words, these estimates suggest that the policy is not useful for raising the earnings of low-wage workers, as the disemployment effect annuls the wage effect for those who are still working.”
The Pessimist Anti-Wal-Mart View: This position views Wal-Mart’s decision as a business move and PR stunt, looking more to improve the reputation of the company than help its workers. Yes, raising the minimum wage is a step in the right direction, but in the same month Wal-Mart announced this decision, Forbes came out with its 2015 list of The World’s Billionaires. While the Walton heirs are always on this list, it reinforces many people’s opinions that Wal-Mart could be doing much more. So just how much are the Walton’s worth? Ranked as the 8th richest person in the world, Christy Walton is worth an estimated $41.7 billion. The 9th richest person is Jim Walton with $40.6 billion. Alice Walton is the 11th richest with $39.4 billion, and S. Robson Walton is the 12th with $39.1 billion. While not in the top 20, Ann Walton Kroenke is the 265th richest person in the world with $5.6 billion. Combine these five’s wealth and it comes to a total of $166.4 billion dollars- just for these five in the Walton family. This fact in itself leads many to become skeptical of any “charitable” or kind act towards the employees, and instead makes them see the company as a corner-cutting, profit-loving company where the only people that benefit from the ‘Save More, Live Better’ motto are those in the Walton family.
Consumers may or may not like Wal-Mart. Some may be on Wal-Mart’s side, some may hate the company, but whatever the person’s view, there is no denying the power Wal-Mart has, and its role in the economy. At the end of the day it is still the largest “entity” in the world and employs more than 1 million Americans. It has incredible power when it comes to the capability of creating change and many are just waiting to see that power put to good use. Wal-Mart will almost certainly always have a place in American society, but whether that is seen as a good or bad thing will be entirely up to them and the actions they choose. Scott Test, assistant professor of business at Arcadia University, perfectly sums up Wal-Mart’s role: “There is enough turnover in retail as it is… If your largest competitor raises its wages, you have to follow suit.”
As for the citizens of America, there is a lot of debate on minimum wage and how much someone should make. As Arry Ritholtz points out, the real question should be, “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?” There is no perfect answer to this. This is an issue much bigger than Wal-Mart, and it is definitely not an issue it can fix, but to the company’s credit, it made a change when it didn’t have to. On the larger scale, Wal-Mart’s action has put more fire in the national debate on minimum wage, and at this point, that can only be a good thing.
-If you have any opinions or questions, please email Rebecca Ewing