Using Minimum Wage Logic, All Walmart Needs To Do Is Raise Prices

Walmart is facing “challenges” according to the headlines. Thus, USA Today:

This winter’s wrath put a chill on Walmart’s sales in the fourth quarter, leading to profit of $4.4 billion, a 21% drop, the company said Thursday.

Walmart’s earnings per share were $1.34, down from $1.67 in the same quarter last year. For fiscal 2014, the company reported EPS of $4.85, a 2.0% increase over fiscal 2013’s EPS of $5.01.

in morning trading, Walmart shares were down were down 88 cents, or 1.2% to $73.96.

That missed Wall Street estimates for annual earnings per share of $5.11 and its quarterly estimate of EPS of $1.59.

It is all the fault of the weather? Sure it is…

There are so many economic fallacies on display when it comes to Walmart, that I think I will have to deal with this in two posts. So my first question is, if Walmart isn’t being paid enough, why not just follow the advice of the minimum wage advocates and raise prices?

According to the minimum wage raisers (as opposed to minimum wage razers, such as myself) all you have to do when there is not enough money coming in, is to raise the price. If people aren’t making enough money at their jobs, just raise their pay and everything will be great.

Except we all know that Walmart can’t get a raise from Walmart’s boss.

You didn’t know Walmart had a boss?

No, I don’t mean anyone in the Walton clan.

I mean the customers. They are the boss of Walmart and they never give raises. Anyone who tries to get a raise from them soon finds themselves out of work. Raise prices, and people will shop elsewhere.

The only way to possibly raise prices is for the government to start controlling all prices. But the government wouldn’t know how to set them. If it just forced minimums, then Walmart would find that its “profits” are not as profitable—the price of everything would rise so that Walmart would be no better off. Also, the value of Walmart’s stock only goes up as long as it can attract purchases by people who decide that Walmart’s value is better than other public companies. If everyone’s prices get raised, this does nothing to help Walmart regain its place in portfolios relative to other companies.

Of course, it could work differently. Maybe a “minimum price law” could be crafted so that people decide they no longer want to go to Aldi’s or a dollar store because the prices are not permitted to go as low anymore.

So a bunch of people would be put out of work and many more would be forced to pay higher prices.

Is that what anyone wants?

And if we all know that Walmart cannot simply give itself more money by raising prices, why do we think that mandating that employers pay their lowest-paid workers more will not result in people losing their jobs and many more never being hired? How is it that economics only works with some things but not when it is a pleasant political fantasy for economics to not work?

Walmart is completely at the mercy of its customers. They were just put on notice with this last report that their customers aren’t happy. They may have to volunteer to provide goods for a lower price.

The idea that Walmart is some all-powerful corporation that has the freedom to pay a lot more to its employees is a convenient delusion for politicians, but it is obviously not true. Lots of once-titanic-seeming corporations have vanished altogether. Others are a shadow of their former selves. Walmart can easily go the same way.