The Minimum Wage

For John, BLUF:  Is raising the Minimum Wage the way to stimulate growth or does it just drive out jobs?  Nothing to see here; just move along.

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BLACK FRIDAY AND THE RACE TO THE BOTTOM POSTED BY GEORGE PACKER Today in The New Yorker is a blog like post by Mr George Packer, "Black Friday and the Race to the Bottom.  It is about how Walmart and Target (pronounced on my side of the family as Targee) not paying its employees enough.

Black Friday began on Thanksgiving Thursday this year, and continued into Shopaholic Saturday and Sunday.  With discounts of up to forty per cent, there were the usual mob scenes at Walmart and Target, the usual brawls over TVs and towels, the usual shoppers with phone cameras immediately uploading footage of the mayhem to YouTube, the usual millions of views within three or four days.  It’s becoming an American holiday tradition, a retailers’ Hunger Games.

Unfortunately, it didn’t work.  Although a hundred and forty-one million people bought things in stores or online, exceeding the 2012 figure by one per cent, they spent $1.7 billion less than they did last year.  Why didn’t the new, extended Black Friday weekend achieve the desired results in consumer dollars?  According to the Times,♠ “Walmart and Target both trimmed their yearly forecasts recently, citing economic factors like slow wage growth, unemployment and sliding consumer confidence.”  In other words, as Steven Greenhouse reported in a bleak post-Thanksgiving article, too many Americans now work low-paying jobs—for example, stocking inventory and ringing up merchandise in big-box stores like Walmart and Target—to have enough purchasing power to boost sales.  Americans are too poor to stimulate economic growth.

This is a problem.  The question is, what is the solution?

There is this in the Comments:

The big exception here is Costco.  This year has been outstanding for the retailer, and with more than $100 billion in annual revenue, Costco keeps growing its top-line and making profits consistently.  "Here’s a crazy thought—might it have something to do with the fact that Costco pays nearly all of its employees a decent living (well in excess of the minimum wage)."

http://www.forbes.com/sites/rickungar/2013/04/17/walmart-pays-workers-poorly-and-sinks-while-costco-pays-workers-well-and-sails-proof-that-you-get-what-you-pay-for/

Maybe.

So, maybe there is something to the Henry Ford approach of paying your employees enough to buy things.  In Henry's case it was about paying them $5 a day, so they could buy a Ford.  On the other hand, the only color you could get one in was Black.

But, what about Walmart?  Per the web site The Statistic Brian, on 31 July 2012, Walmart had 2,000,000 (2 million) employees.

Over at The Huffington Post we find an article that says that Walmart CEO Mr earns $20,700,000 a year (20 decimal 7 million).  With a workforce of 2,000,000 (2 million), that means that if he gives up half his pay it would be a $5 bump in everyone else's paycheck.  So, there had better be a lot of executives out there across Walmart making the big bucks to up the pay of the workers.  For example, four making $10,000,000 ($10 million), could take a 25% cut and given everyone another $5, for a total of $10.  To make it $100 total would take another 72 executives.  Better make that $100 a Christmas bonus.

So, the cutting of executive pay seems like a poor start, but back at The Statistic Brian we have the idea that Walmart's annual sales are $405,000,000,000 ($405 billion).  That is $202,500 (200 Gs) per employee.  Where does the rest of it go?  There is the cost of purchasing all the stuff sold, and distributing it.  There is a share to the stock holders.  There is the part held back for future expansion.  There are taxes to be paid, Federal, state and local.  The money has to come from somewhere, doesn't it?

To understand that this is a universal concern, consider that when the US Congress raised the Federal Minimum Wage, they exempted American Samoa.♥  Why?  Because a Mr Paul Pelosi has a big investment in the company that has a canning factory out there and was able to convince his wife Nancy, who was then the Speaker of the House, that canning operations in American Samoa couldn't afford the extra cost of the increase in the minimum wage.

Regards  —  Cliff

NB:  The article says our Commonwealth has passed a new minimum wage bill.  The State Senate has, but the Representatives have not.

♠  Which Times?
♥  The story often says the location is Guam, where America's day begins.  Close, but no cigar.  They are 3,596 miles apart, Guam to the Northwest of American Samoa.