Basic Economics Is Causing Large Problems As Wal-Mart Raises Minimum Wage

Basic Economics Is Causing Large Problems As Wal-Mart Raises Minimum Wage

It seems that Walmart is being forced to cut hours as part of a desperate attempt to cover the wage hike this year. We all remember how people who were working low paid service jobs marched in a bid to raise wages to something livable. Not everyone got an increase, but there was general rejoicing among workers when some of the retail’s largest names offered increased wages to a livable standard.

One of those giants was Walt Mart. Earlier this year they became one of those large retailers who raised the minimum wage for their workers. Over 500,000 workers are set to make at least $9 an hour working for them. Some may earn as much as $10 an hour. Everybody is happy.

Well, maybe not everyone. You see, basic economics is now going to raise its ugly head. This increase will cost Walmart approximately $1 billion just this year. Walmart must now find ways to cover this expense. One way would be to raise prices to cover labor costs. This act could knock Walmart out of the low-price field that has made them such giants. No, some other way would have to be found.

Layoffs may be occurring. An internal memo has been circulated at the Arkansas recruiting firm Cameron Smith and Associates. It seems to be set the groundwork for layoffs in the home office. Still that’s not going to cover the new costs.

One short week later Bloomberg told of the grievances of the most senior employees. It seems that the wage hierarchy is now severely misshapen. It is no longer seen by employees as having anything to do with merit. This is because some lower level workers now make as much or in some cases even more than do middle management workers. This loss is seen by workers as very wrong.

The problem is that if this condition is to be corrected it will now cost Walmart around $1.5 billion. Everyone notice that this is $.5 billion more than originally thought. This increase is necessary if Walmart isn’t to let middle managers just walk out. That’s a lot of talent to lose and could even increase costs.

Walmart has made several moves in order to cover the losses. The problem is that they can’t cover costs by raising prices or allowing middle management walk out leaving the giant to spend even more in training higher paid persons to fill the job slots. There is one strategy left, and that is to cut workers hours. That according to Bloomberg is exactly what is happening. Some stores have reported as much as 200 hours removed from schedules during one of the shop’s busiest seasons, back to school.

It really should come as no great surprise. Many people warned that raising the minimum wage without some preparation would be disastrous. Basic economics should have told everyone that the cost had to be covered somehow. That somehow is by reducing workers hours until the rise in wages becomes lost.

Geoffrey Algar
Geoffrey Algar
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