In economics, there is a constant need to find a balance between maximizing the benefits of an action and minimizing the costs. For Walmart, and many retailers alike, they face similar tradeoffs when it comes to paying their employers. According to the CNN money article "Are minimum wage hikes to blame for falling profits?" author Patrick Gillespie explores the company's blame for the recently falling profits. Recently, Walmart has been noted to have increased the wages for the workers to $9/hr this year and possibly up to $10/hr next year. On one hand, this might seem like a hugely positive factor for the minimum wage laborers, yet for Walmart, these wage increases will result in an extra $1.2 billion this year and $1.5 billion the next. With such a tight labor market in the current economy, where there is "more pressure on minimum wage employers to raise wages," Walmart has obviously felt the pressure in order to stay in line with companies like Dunkin and Starbucks which have done the same. Clearly, with more funds going towards wages, there are less to help improve and innovate the company (possibly a reason for falling profits).
On the other hand, the article mentions that the raise in wages may keep the workers placated, but in the end they result in shortened hours or loss of jobs. This idea makes sense because as a firm's production costs increase, it is harder to pay for the same amount of labor. This controversial idea was brought up by Jess Levin, a spokesperson for the United Food and Commercial Workers Intl Union, who claimed that "Walmart should be ashamed" of these actions. With less workers, the company may not be as efficient as it previously was, hence, another cause of falling profits.
In the end, analysts believe that Walmart's claims are generally accurate because there are always opportunity costs when dealing with the minimum wage.
http://money.cnn.com/2015/10/15/investing/corporate-america-profits-fall-blame-minimum-wage/index.html
Was the company not profitable last year then? Or was the problem that the stock price declined which makes investors unhappy? If the company is still highly profitable then after the stock price has stabilized will there still be a problem?
ReplyDeleteI think that minimum wage requirements can have some effect on companies, but ultimately I don't think they can blame it as a major factor for falling prices. There are definitely opportunity costs, maybe a higher minimum wage means Walmart can't offer as low prices or may have to cut back on employees/hours. With that being said, I do think that higher wages does keep workers longer and they become more efficient as well, so while a minimum wage increase might have some effect on profits, I think it is made up for by employee productivity and less employee turnover.
ReplyDeleteI agree with all of Christopher's comments above. I think that by Walmart increasing the minimum wage of their employees obviously has a cost associated with it to some extent, however I think the benefits to their employees outweigh this cost. In the past, Walmart has been known for treating their employees poorly which no doubt had to of effected their willingness to work hard while on the job, to do their best work, and also to stay with the company for longer than necessary. With this being said, the higher minimum wage is likely to increase worker productivity, allow Walmart to keep their employees for longer periods of time, as well as for their employees to be engaged in their work and with the customers they are serving. With this being said, I also did an article on Walmart and I think a lot of this loss of profit can be attributed to the growing e-commerce market that has not be successfully tapped into by Walmart and other grocery stores. By doing this efficiently, I think Walmart could significantly decrease its cost structure allowing them to increase profits and to better support the increase of the minimum wage for their employees and relieve the stress they are currently feeling due to the change.
ReplyDeleteI think it is great that Walmart is increasing their minimum wage as well as investing in the education and training of their workers. This way the company will have more dedicated people working for them because they are receiving good benefits. However, I agree with the fact that this might affect their profits. They should try to focus on sales a little more than they are focusing in wages and workers.
ReplyDeleteI agree with everything that has been said thus far. It is also important to remember that the employees of Walmart tend to have a lower socioeconomic status. With an increase in the wage for Walmart, they are assisting their employees in creating a better life for themselves and their families. Simultaneously, these higher wages are benefiting the company with lower employee turnover rates and higher productivity. Ultimately, these benefits will save money. When employees are treated well by the company they are more likely to act loyally.
ReplyDeleteThe article raises an important debate but leaves many questions unanswered, as some of you pointed. It is a very one sided incomplete article, meaning while it does show drop in Walmart's stock values and rise in wages, a significant correlation cannot be established until other important factors are considered too. Have profits fallen because of lower sales? If so, why is demand dropping? I shared an article on this same blog two days ago about drop in retail sales in 2015, has Walmart also fallen prey to the same trend? If so is the case, does it indicate customers are saving more?
ReplyDeleteI am curious to know so much more about this. Thanks for sharing!
Crazy to think about how much a one dollar increase in wage rates can affect stores such as Walmart like that. I do think that people should be paid more, but on the other hand, I don't think that people should be satisfied with working at Walmart for 9 or ten dollars an hour. They should strive to move up the chains and gain better jobs.
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