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Evanson: Always Low Prices, now higher minimum wage

BY KETIH EVANSON | FEBRUARY 26, 2015 5:00 AM

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Rejoice, minimum-wage workers of Walmart. You’re getting a raise.

Yes, it’s true. The outdated Walmart business model, which was to hire as few employees as possible while paying them as little as possible in order to keep product prices as low as possible is no longer.
Walmart announced last week that effective in April, the lowest starting wage for its employees will be $9. For states such as Iowa, which is tied for the lowest minimum wage in the entire country at $7.25, this is a big deal.

Being the biggest private employer in the United States, this pay raise will affect more than 500,000 of Walmart’s estimated 1.3 million workers.

What’s the catch? Walmart can’t do this out of pure goodwill. The bottom line for big business is still the same as it’s ever been: Revenues minus expenses equals profit. If employees are being paid more, expenses will be higher, leading to a profit margin that isn’t as nice as it used to be.

Starting with the obvious, this is a PR move. In a current political climate heated  between federal minimum-wage increases advocated by President Obama and a staunch conservative opposition in both the House and Senate, this move comes off by Walmart as progressive and altruistic.

Deciding to proactively raise wages, Walmart has also saved itself future problems from having to be forced to respond to future minimum-wage legislation. The financial shock for the largest private employer in the world is significantly reduced if it can gradually raise minimum-wage rates itself rather than having to adjust its pay scale to federal standards.

Not only is Walmart responding to the political climate, it is also responding to the economic climate. A current unemployment rate of 5.7 percent means that workers don’t have to resort to low-paying jobs at Walmart as they did in 2009, when unemployment peaked at a whopping 10 percent. This pay raise could signal a restoration of an economy that was broken from a recession.

According to Bloombergview.com, 44 percent of Walmart’s staff turns over each year. That’s right, nearly half of all employees come and go in a year. Compared with a competitor such as Costco, which experiences only a 17 percent turnover rate, it’s quite alarming. The unneeded expense that Walmart suffers to a degree that Costco doesn’t includes hiring and training new employees just to have them quit suddenly is a trend that will implode over time.

Responding to Walmart, retailer T.J. Maxx has recently announced it will also raise minimum wages to $9. The ripple effect that Walmart may have on the retail industry may be significant if others copy its pay initiative. In the fast-food industry, the second-largest private employer, McDonald’s, will be pressured. Why flip a burger for $7.25 when you can stock shelves for $9?

In the end, that is what this all comes down to: competition. In a market economy, that keeps businesses honest. Walmart’s decision was a PR move as much as it was a business decision. The company was no longer a desirable place to work; employees “voted with their feet” and left for more beneficial situations.

In the case of a federal minimum wage, most will not think to flee the country, but they will surely take off their blue smock and flee from behind the cash register. It may be possible that legislation won’t be needed to raise minimum wage in an economy in which competition is driving wages up as a response to a growing economy.


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