Wal-Mart: Start Paying Your Workers Enough, Dammit!

I started looking at Wal-Mart after I read this article, which states that Libertarians should support the Wal-Mart strikers.  What annoyed me about the article is a statement near the end: ““[Wal-Mart’s] profit margins are huge.”  So, I checked, and it turns out that Wal-Mart’s net profit margin is approximately 3.5 percent, hardly what I (or any rational person) would call “huge.”  That said, I am actually surprised that Wal-Mart doesn’t raise the pay of their employees.  In fact, it would likely raise the company’s stock price, as well as helping to decrease the federal (and state and local) debt problems.

First, though, let me say that most of what follows is based on estimates I found around the internet, which I believe to be relatively accurate, at least accurate enough to get the idea across.

I started with the financial data from the SEC EDGAR website, specifically, the quarterly results for the quarter ended July 31, 2012.  I used a number that is floating around the internet for the amount of public assistance that is paid to Wal-Mart employees: i.e. $2.66 billion annually.  Since I was working with quarterly figures, I divided this by 4.  I assumed, then, that Wal-Mart would give their employees a raise totaling $665 million per quarter, plus an additional 13 percent to cover Social Security and Medicare.

This leads me to an admittedly “sketchy” part of my analysis: the savings that Wal-Mart would realize by lowering their employee turnover rate, currently at 70 percent.  Some estimates say that the cost of replacing an employee is as high as 150 percent of the annual pay for the job, but given that the jobs at Wal-Mart aren’t generally highly skilled, I used the low end of the spectrum, 30 percent.  I also made what I think is a relatively conservative assumption about the effect of higher wages on employee turnover: that turnover would still be as high as 50 percent.

Finally, I solved for how much revenue would need to increase in order to make up the difference in Wal-Mart’s earnings: a mere 0.15 percent.  I seriously doubt that there would be any substantial loss of volume from that much of a price increase.

Perhaps the most meaningful part of the whole exercise is how this change would affect tax revenues and government payouts.  Here are some figures:

• ·         Wal-Mart would pay $249 million less corporate taxes per quarter.
• ·         Government aid to Wal-Mart employees would decrease by $665 million per quarter.
• ·         Net benefit to the government would be 665 – 249 million = $416 million per quarter.
• ·         Social Security and Medicare would receive $86 million more per quarter.
• ·         State and local sales taxes collected (assuming a 5 percent rate) would increase by $8.7 million.
• ·         Total tax benefit would amount to approximately $12.32 per taxpayer, per quarter.

The bottom line is that it looks like everyone wins, or at worst, stays the same.  Some people think that the government needs to do something to fix the economy.  I say at least part of the reason the economy is in such bad shape is that the government tried to fix it and failed.  It’s time for corporate America to do something, instead of telling the politicians what they should do.  Pay your workers a decent living wage, for crying out loud.