Why Wal-Mart can NOT afford to pay workers a $15 minimum wage
Author: Michael Saltsman
Publication Date: June 2016
Topics: Minimum Wage
Can large corporations afford a $15 minimum wage better than small businesses?
Despite the fact that roughly half of the minimum wage workforce is employed at businesses with fewer than 100 employees, corporations such as Wal-Mart have been used as the poster child in the case for a much higher wage floor.
This claim rests on three talking points: These companies sell billions of dollars of retail goods or food products; their CEOs are typically paid a lot of money; and the higher pay will help get their employees off government programs.
None of these justifications survive careful scrutiny.
Wal-Mart is “hugely profitable,” writes the National Employment Law Project (NELP) in a recent commentary, generating “$482 billion in revenue in fiscal year 2016.” Here, the writer falsely equates revenue (the money a company takes in before subtracting expenses) and profit (how much a company makes after it pays its costs). It’s a common tactic used to shock readers and inflate the perception of a company’s finances.
Wal-Mart’s actual profit, according to SEC filings, was only 3 percent of its total revenue. That works out to roughly $6,400 dollars in profit for each of the company’s 2.3 million employees—a profit that could be wiped out with a $15 minimum wage.
Labor advocates are also fond of appealing to their readers’ sense of fairness by arguing that CEO pay at the company proves it can afford a $15 minimum wage. But the math here also doesn’t add up. Wal-Mart CEO Doug McMillon earned a combined $19.4 million compensation package in 2015, including salary, stock options, and other perks. That makes for a dramatic sound bite. But if this money was somehow divided between all 2.3 million Wal-Mart associates, each associate would get a one-time $8.43 bonus—that’s it.
The fights for $15 have even tried to appeal to conservative hearts by arguing that the higher pay requirement will reduce employees’ need for public support programs. It’s debatable whether this argument is offered in good faith: California Assemblyman Kevin McCarty (D., Sacramento) recently let slip his mask of concern for the taxpayer when he and his fellow legislators pushed to raise the income thresholds for a public program so that recipients of the state’s new $15 minimum wage could still qualify for state benefits. So much for ending welfare as we know it.
More importantly, the data doesn’t support this notion of a taxpayer windfall following minimum wage increases. In a report last year, Joseph Sabia and Thanh Tam Nguyen of San Diego State University examined 35 years of government data across a number of different datasets. Their results suggest that, on net, minimum wage increases have little to no ameliorating effect on participation in (or spending on) a range of means-tested programs. (Part of the reason lies in the fact that a majority of working-age adults in poverty don’t have jobs; more importantly, as some of the working poor get a raise, others see their hours or jobs cut as employers adjust to consumers’ reluctance to absorb price increases.)
When the best data doesn’t support the case for $15, the UC Berkley Center for Labor Research and Education is on hand to fill in the gaps. Indeed, the work of this union-funded research unit has been used by advocates in almost all recent minimum wage debates. An Albany Times-Union exposé from earlier this year gives some indication as to why. Reviewing hundreds of pages of emails obtained using a public records request, the paper reported that labor advocates often work hand-in-glove with the Berkeley team that is supposedly a neutral source of information.
The drive for a $15 minimum wage relies primarily on popular momentum, and not the strength of the movement’s evidence. A 2015 University of New Hampshire survey of prominent economists found that nearly three-quarters oppose a broad minimum wage mandate of $15 per hour, and five out of six surveyed economists believe it would have negative effects on youth employment levels.
This economic consensus in opposition to the “Fight for $15” won’t convince organized labor and its allies to stop promoting the policy—but it should convince policymakers to stop listening to them.