Minimum wage protests are forever popping up across the country protesting against big retailers such as Walmart and fast food purveyors such as Burger King. The next protestors may not be asking that minimum wages be raised but halted given the unintended consequences on their own earnings.
In a memo to store managers, Walmart released changes to base salaries at 1,434 stores (about one third of U.S. locations) in response to minimum wage hikes in 21 states that will kick in on New Year’s Day. Thirteen states raised the minimum wage this year, up from 10 last year, and 8 in 2012.
Walmart is changing its pay structure, including narrowing the gap in the minimum premium paid to those in higher skilled positions. So deli associates and supervisors will not be getting much more than their low and lower-skilled colleagues. In addition, Wal-Mart’s lowest pay grades such as cashiers and cart pushers will be combined into one base rate. Imagine what kind of impact this will have on workers’ productivity, morale, and ambition.
All of these changes are part of an effort to soften the blow of anticipated spikes in labor costs when new minimum wage rates kick in later in various states. And let’s not forget that Walmart is already facing higher labor costs because of ObamaCare changes.
Reuters has the exclusive:
For Wal-Mart, the biggest private employer in the United States with 1.3 million workers, minimum wage legislation is not a small thing. Its operating model is built on keeping costs under close control as it attracts consumers with low prices and operates on tight margins.
In recent years, it has been struggling to grow sales after many lower-income Americans lost jobs or income in the financial crisis.
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The changes appear in part to be an effort to offset the anticipated upswing in labor costs, according to a manager who was implementing the changes at his store.
"Essentially that wage compression at the upper level of the hourly associate is going to help absorb that cost of the wage increase at the lower level," said the manager, who spoke on condition of anonymity.
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Wal-Mart has indicated it may make more changes to its compensation structure in 2015. Chief Executive Doug McMillon recently said the company would improve opportunities for workers, including getting the roughly 6,000 people who make the federal minimum wage of $7.25 an hour at its stores off that rate.
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The state minimum wage changes range from a 17 percent increase in South Dakota to $8.50 to a modest rise of 2 percent to $8.05 in Arizona. They will also impact many of Wal-Mart's big retail rivals, such as Target Corp, and fast-food chains like McDonald's Corp.
Raising the minimum wage is an easy rallying cry. Labor unions and other sympathizers have been pushing Walmart, other retailers, and fast-food chains to pay at least $15 an hour, which they consider the right level to raise a family on. In a weekly address, for example, President Obama explained that raising the federal minimum wage to $10.10 an hour would boost wages for 28 million Americans many of whom are 35 years old and raising a family.
That argument is fallacious for several reasons. First, minimum wage is earned by few workers. According to the Bureau of Labor Statistics, last year 1.532 million hourly workers earned the federal minimum of $7.25 an hour – just 4.3% of the nation’s 75.9 million hourly-paid workers and 2.6% of all wage and salary workers.
Second, minimum wage it is generally paid to starting level workers, who have the opportunity to quickly move up to a better job. The majority of minimum wage earners are teenagers and young adults who are just starting out in their careers and seeking to build basic skills and experience. 71 percent of minimum-wage workers are younger than 30 — a starkly different picture of low-wage workers that the President and those on the Left like to paint.
Third, it’s not necessary. Most minimum wage earners don’t spend their careers at that level. They either progress in their roles and earn more or leave their jobs for higher paying jobs.
In addition, why is $15 an hour or $10.10 the right level for the minimum wage? These are arbitrary numbers that don’t take into account state and regional differences in the labor market and standards of living. There are also differences between urban, suburban, and rural life that make $15.00 an hour overkill in some areas.
In the case of Walmart’s salary changes, what is going through the minds of those higher-skilled workers who have earned their higher wages? What incentive is there to work hard and develop skills if you’re going to be paid barely above those whose jobs require no skills at all? Doesn’t that retard hard work and career progression?
Once again, a well-meaning policy causes unintended consequences which outweigh the intended benefits. I’m sure protestors and legislators who pushed for minimum wage increases never thought Walmart would respond by changing wages of higher skilled workers to mitigate higher costs, but that is what happens when you try to centrally plan.