Before the New Overtime Rule Kicks In, Walmart Gives Managers a Raise

October 12, 2016 Paul Constant

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Daniel Wiessner and Nandita Bose report for Reuters:

Wal-Mart Stores Inc has raised salaries for entry-level managers before a rule change that extends mandatory overtime pay to more than 4 million U.S. workers, in an attempt to shield itself from unpredictable additional costs for salaried employees.

The raise was pretty significant—$45,000 per year to $48,500. And as Wiessner and Bose note, this decision wasn’t made out of the kindness of Walmart’s heart. (For those of you who flunked out of anatomy in college, here’s a tip: Walmart doesn’t have a heart because it’s not a living organism.) Walmart was simply ensuring that their managers were paid above the $47,500 threshold adopted by President Obama’s Department of Labor. That $3,500 raise might sound like a lot, but it’s probably peanuts compared to the overtime Walmart would have to pay its workers under the revised overtime threshold.

And that’s exactly how the overtime rule is supposed to work. The old threshold—an embarrassing $23,660 per year—was so pitifully low that a whole generation of Americans grew up thinking that overtime only existed for unionized employees and government workers. We need an overtime rule that ensures low-wage employers (and yes, even though Walmart pays slightly more than the minimum wage now for starting employees, I’d still count them as a low-wage employers; equivalent managers at Costco earn $60,000 per year and up) pay a living wage to their employees.

Note, too, that once Walmart raises their employees wages above the threshold, they can expect those employees to work over 40 hours a week without additional pay. That’s how it’s supposed to happen. The government isn’t taking away an employers’ ability to expect more work out of their employers, it’s simply asking employers to pay their employees fairly for the time they work.

But before we go crazy high-fiving Walmart for the good things they’ve done for their employees (fact check: Walmart is still not a living organism and so doesn’t have hands to high five) let’s acknowledge something. Walmart could have paid their employees this much before the overtime rule; this extra $3,500 per employee amounts to basically nothing when put up against the $14.7 billion annual profit the company turns.

Really what this proves is that the wages are not set by the almighty invisible hand of the market. Workers are not paid what they’re worth—employers pay their workers as little as they possibly can. This is why unions, where workers collectively barter for higher wages, are a great idea; individual negotiations generally aren’t as fruitful for the employees. These stronger regulations, in tandem with the $15 minimum wage, are providing some of the benefits once provided by unions.

The next time someone tells you workers shouldn’t be paid more than they’re “worth,” that the market sets wages through a simple mechanism of supply and demand, I want you to remember this story. Would Walmart have raised their managers’ pay by over three thousand dollars a year had the Obama Administration not proposed raising the overtime rule? That doesn’t seem likely to me.The invisible hand doesn’t exist. Workers aren’t paid what the market decides they’re worth—they’re paid what employers think they can get away with paying.

Aisle 15 Now! New Walmart Ad Shows We’re Winning the Narrative on Wages

November 6, 2015 Goldy

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Economics, Minimum Wage

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Nope, nothing subliminal at all about Walmart winking on the aisle 15 light in its new commercial touting higher wages.

If there is a comic book villain in the Fight for $15 it is Walmart, a company as famous for low wages as it is for low prices. The discount retailer’s 1.4 million mostly low-wage employees are icons of the working poor, costing US taxpayers an estimated $6.2 billion a year in Medicaid, food stamps, housing assistance and other public subsidies. And so when Walmart announced earlier this year that it was raising its starting wage to $9 an hour in April, and to $10 an hour in 2016, it was big news.

Walmart had been plagued by high employee turnover, stagnant same-store sales, and a reputation for poor customer service. But in a recent blog post, Walmart CEO Doug McMillon says that his new wage strategy is already paying dividends: “We have seen associate engagement and customer satisfaction scores increase dramatically over the past eight months and comp sales are increasing,” writes McMillon. “Bottom line – it’s working.” But after learning the $1.5 billion cost of next year’s raise would temporarily lower 2017 profit-per-share forecasts, Wall Street handed Walmart’s stock its largest single-day price drop in 15 years.

Corporate short-termism is hard for a CEO to resist, and in past years, McMillon might have caved in to the demands of disgruntled shareholders. But thanks in large part to the Fight for $15 and its dramatic victories in Seattle, San Francisco, Los Angeles, New York, and elsewhere, the national narrative about wages has changed. And so rather than reversing its strategy, Walmart is responding to investor criticism by re-airing a TV ad touting its “Raise in Pay.”

“Because a raise in pay raises us all,” the narrator concludes, just as the light over aisle 15 winks on. Get it? Aisle 15? It would be downright subliminal if it wasn’t so obvious.

Of course, even at $10 an hour Walmart will still be a low-wage employer with abusive scheduling practices. But when we’ve got the nation’s largest retailer spending its enormous advertising budget advancing our narrative that raising wages is good for business and good for the economy (while giving a friendly nod to the Fight for $15)—that is a sign of a winning movement and a winning message.

Walmart CEO on raising wages: “Bottom line – it’s working.”

October 19, 2015 Goldy

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Economics, Minimum Wage

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Last week, when Walmart forecast slow sales growth for this year and a drop in profits for the next, Wall Street responded with the biggest one-day plunge in the company’s stock in 17 years.

“The reaction by the market – while not what we’d hoped – was not entirely surprising,” Walmart president & CEO Doug McMillon admitted in a blog post while recommitting to his plan to heavily invest in people and technology: “These investments are critical to our current and future success as a company. Simply put, it’s the right thing to do.”

And we will continue investing in our people. Today we shared details around the $1.5 billion investment we will make next year to bring the wage for current associates to at least $10 in the U.S. The return from the initial investment of more than $1 billion we made earlier this year is encouraging. We have seen associate engagement and customer satisfaction scores increase dramatically over the past eight months and comp sales are increasing. Bottom line – it’s working.

During its decades-long climb to the top of the retail food chain, Walmart has made itself the poster child for a parasitic low-wage business model that leaves full-time wage earners reliant on government assistance just to scrape by. So if raising wages well above the current federal minimum of $7.25 can work for Walmart, it’s hard to argue it couldn’t work for the rest of the economy as well.

It’s the Productivity, Stupid (or Why Rising Wages Drive Economic Growth)

September 3, 2015 Goldy

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Economics, Minimum Wage

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I agree 100 percent with Forbes blogger Tim Worstall. No, not with his blind faith in the divine wisdom of the free market, or with his pioneering use of intra-word semicolons. I simply agree with Worstall’s belated acknowledgement that higher wages lead to higher productivity:

Costco pays very much higher wages than Walmart. It also employs about half the amount of labor per volume of sales. Costco is therefore simply in a different model along that same spectrum of trading off hourly productivity against hourly wages. And note the obvious point here: Costco pays much better but also uses many fewer labor hours. And as Walmart moves along that same spectrum of possible labor models it is facing exactly the same calculation. Raise the wages in order to get more productive staff and the very point and purpose of what you’re doing is to reduce the number of labor hours you must purchase.

Of course, this is part of what we’ve always argued when we’ve insisted that a higher minimum wage won’t inevitably lead to some combination of higher prices, lower profits, worse service, and/or shuttered businesses. There are real benefits that accrue to employers in moving toward a higher wage business model, two of which include lower rates of turnover and higher rates of productivity.

Higher productivity—even according to traditional economics, that’s a good thing, right? Indeed, throughout the course of US history (if in fits and starts), the steadily rising productivity of the American worker has helped to lift living standards for us all.

And yet, from his headline—”Of Course Walmart Cut Hours After Raising Pay–What Did You Expect?”—Worstall seems to imply that rising productivity is actually bad for Walmart workers? Weird.

The implied threat is that if workers are more productive, Walmart will need less of them, meaning a higher wage will at least indirectly cost some Walmart workers their jobs. It’s a more nuanced argument than the old “if the cost of labor rises businesses will purchase less of it” meme that minimum wage opponents usually put forth, but it still oversimplifies what is actually happening on the ground at companies like Costco and Walmart.

You see, Costco’s higher-wage model doesn’t just deliver substantially higher sales per employee than Walmart, it also delivers substantially higher sales per store and sales per square foot. But more importantly for the purpose of this discussion, year after year, Costco’s same-store sales growth is consistently higher than Walmart’s—7 percent versus 3.5 percent in the most recent quarter. And even though Costco requires fewer employees per unit of sales, the faster Costco grows sales, the faster it adds workers. And the same dynamic should hold true for Walmart, at least once it fully realizes the productivity enhancements that naturally come from employing a more experienced, loyal, and competitively compensated workforce.

Thus when Worstall concludes that “the very point and purpose” of what Walmart is doing is “to reduce the number of labor hours you must purchase,” he’s actually missing the point entirely. Yes, a more productive workforce means Walmart will need fewer labor hours per unit of sales. But sales are not static. In fact, rather than lowering labor costs, the very point and purpose of what Walmart is doing is to increase same-store sales.

Worstall describes the wage/productivity calculation as a “trad[e] off” between wages and jobs, but this isn’t a zero-sum game at either the micro- or macroeconomic level. After all, there’s a reason why Republicans are running on economic growth: because economic growth is how we generate jobs. “That will be my goal as president,” Jeb!™ absurdly promised back in June, “4 percent growth, and the 19 million new jobs that come with it.” Okay, whatever. Still, GDP growth is mostly a function of change in the size of the workforce plus change in productivity. The more we increase productivity, the more the economy grows. And the bigger the economy, the more jobs.

So if (as Worstall correctly argues) higher wages drives higher productivity, and higher productivity drives economic growth, and economic growth drives the creation of new jobs—then logically, higher wages must drive the creation of new jobs. Worstall can’t have it both ways. Rising productivity can’t simultaneously increase and decrease net employment. And since over the history of market capitalism rising productivity has generally led to more jobs, higher wages, and higher living standards, I’m guessing it’s the former.

Interestingly, the whole implied threat in Worstall’s wages argument is identical to the threat at the heart of the “robots are coming for your jobs” meme: rising productivity is somehow bad for workers. (That is the whole point of automation, after all—to increase productivity.) But in the long term, at the macroeconomic level, this dystopian vision of productivity as a job-killer simply cannot come true… at least not in any economic, social, or political system remotely similar to the one we live in today.

In our current economy, productivity drives growth, and growth creates jobs. That’s how it works at Costco. That’s how it works at Walmart. And that’s how it works in the economy at large.

Walmart