Almost as soon as I write a piece mocking minimum wage in the case of Walmart, I find that the Huffington Post is pretending that there is nothing to mock. They claim that raising the minimum wage will help Walmart get back its profits.
Walmart currently does not support raising the federal minimum wage. However, considering the company’s lackluster performance over the past few months, perhaps it’s time to take a stand.
On Thursday morning, the retailing giant announced a a 21 percent drop in profits in the last three months of the year, which covers the crucial holiday season. Some of the drop had to do with weather — more than 200 Walmart stores had to close some time over the last few months because of winter storms. However, much of the decline was the result of a pull back by shoppers pinched by recent federal benefits cuts, officials said on an earnings call Thursday.
U.S. same store sales dropped 0.4 percent last quarter U.S. CEO Bill Simon said on the call. If the government hadn’t cut food stamp benefits in November, “we believe the quarter would have been flat,” he said.
In other words, the food stamp cuts were so devastating, customers were too poor to shop at Walmart.
Thursday’s earnings call is one of several times Walmart’s blamed government benefit cuts for mediocre revenue in recent months.
It’s no surprise that a reduction in benefits for the lowest-income Americans would hit Walmart’s bottom line. Eighteen percent of food stamp dollars are spent at Walmart stores, according to a Wall Street Journal report from October. The company also caters to the most cost-conscious consumers.
“Our customers rely on us to deliver low prices on the items they want most,” Simon said on the call.
Which is all the more reason why a minimum wage hike would be good for Walmart. Sure, they’d have to pay their workers more, but so would everyone else. And the benefits of a minimum wage boost would go largely to the types of Americans that shop at Walmart. A report released Tuesday by the Congressional Budget Office found that raising the minimum wage to $10.10 an hour would lift 900,000 Americans out of poverty and give 16.5 million low-income Americans a raise.
These claims are unbelievable. One could just as easily predict that the number of people who will lose their jobs due to the higher minimum wage hike would also especially be likely to be Walmart shoppers. Once they lose their jobs they will not be buying as much stuff. Furthermore, to the extent that a raise in minimum wage will increase spending, the result will most likely be price inflation. So profits in real terms will remain what they are now.
But what if Walmart is forced to lower prices in order to increase sales? In that case, then workers have managed to win for themselves a “raise,” even though their wages are the same as measured in nominal dollars. When buying power increases, that means that each dollar earned is able to do more than it could a little while ago.
Forcing employers to pay more for employees does not create economic prosperity. It can only tend toward poverty.