The Clinton Herald, Clinton, Iowa

Community News Network

February 21, 2014

In minimum wage debate, Wal-Mart poised for a Ford moment

WASHINGTON — In 1914, Henry Ford announced he was more than doubling the average wage of Ford Motor Co. factory workers to $5 a day, in part so they could afford a Model T. His act took the world by surprise, spurred auto sales and helped create an American middle class.

One hundred years later, U.S. companies including Gap and Wal-Mart Stores are caught up in the debate over raising pay - this time an increase in the federal minimum wage. President Barack Obama and Senate Democrats want to raise it to $10.10 an hour from $7.25, saying doing so will bolster the economy and reduce income inequality. House Republicans and industry groups oppose the plan, deeming it a job killer.

"When Henry Ford announced the 5-dollar-day, the response was that it would diminish the auto industry and bankrupt his company," Harley Shaiken, a labor economist at the University of California, Berkeley, said in an interview. "Instead it jump-started purchasing power, reduced turnover and increased the profitability of Ford Motor Co. There's a lesson we can still learn from that."

 A boost in the minimum wage to $10.10 would add $200 million - or less than 1 percent - to Wal-Mart's annual labor bill, the University of California Berkeley Center for Labor Research and Education estimates.

If Wal-Mart passed along the estimated $200 million in extra labor cost to consumers, it would equal about a penny per $16 item, said Ken Jacobs, the Labor Center's chairman. Meanwhile, the rise may boost purchases among the chain's core shoppers, many of whom could see their earnings climb, he said.

The corrosive effects of income inequality on companies came into renewed focus Thursday when Wal-Mart said profit this year will trail analysts' estimates as its low-income U.S. customers continue to struggle. The Bentonville, Ark.-based retailer, which previously backed a higher minimum wage, is trying to assess whether raising it again would help or hurt.

Gap didn't wait for Congress to act and announced raises for store workers starting next year. Obama hailed the San Franciso-based chain's action and urged others to follow.

The 1914 pay increase was a more dramatic change than the current proposed increase. Raising wages to $5 gave workers an extra $62.22 daily in purchasing power in 2014 dollars, based on a Bureau of Labor Statistics inflation calculator, assuming they were earning the $2.34 industry average. Today, workers will gain $22.80 per 8-hour day with a $7.25 to $10.10 raise.

Still, economists say raising the wage will help low-income workers. In a report this month, the non-partisan Congressional Budget Office said that while raising the federal minimum wage to $10.10 an hour could wipe out as many as 500,000 jobs, it could also boost the incomes of 16.5 million low-wage workers by $31 billion in 2016.

"High wages make your employees better customers," Wallace Hopp, associate dean of faculty and research at the University of Michigan's Stephen M. Ross School of Business, said in an interview. "You're putting this money in the hands of people who are most definitely going to spend it. They're not socking it away in mutual funds. The money goes back into the economy pretty quickly."

While the U.S. economic recovery is in its fifth year, disposable incomes only inched up in 2013, for the fourth year in a row. Low-income shoppers have been buying mostly necessities even as more well-heeled consumers shell out for bigger-ticket items such as appliances and cars. As a result, Ford and General Motors last year posted the strongest auto sales in the U.S. since 2007. By contrast, retailers from Wal- Mart to Lululemon Athletica have cut their forecasts.

 For Wal-Mart, the question is whether a higher minimum wage that putts more money in shoppers' wallets would boost sales enough to offset higher labor costs. Figuring that out isn't easy because it's hard to predict consumer behavior, David Tovar, a company spokesman, said in an interview.

Would increased consumer spending "offset and maybe even exceed whatever impact you pay out to associates?" he said. "It's really hard to model behavior based on these kinds of changes."

Wal-Mart won't reveal the potential added costs or potential impact. The calculations for the Berkeley study are based on Wal-Mart's wage distribution data, which the company published as part of a lawsuit more than a decade ago, Jacobs said. That data is indexed to Wal-Mart's average full-time wage, which the company updates each year, and his estimates of its state and federal minimum wage workforce are very close to the retailer's, he said.

"It's a rough estimate, but however you change the parameters, at $10.10 you are not going to come up with a big number vis-à-vis their overall cost structure of business," Jacobs said.

 Other large discount retailers and dollar stores may similarly see higher sales, which may help them to cushion the additional labor costs. Such an outcome reinforces the view of minimum wage supporters that a hike bodes well for consumer spending, 70 percent of the economy.

Much of the extra cash that workers would get is likely to go to basic goods, such as clothing and food, resulting in a "very modest" impact, said Mark Zandi, chief economist at Moody's Analytics Inc. in West Chester, Pa.

Labor-intensive businesses like restaurants could find the wage hikes more difficult to absorb than large retailers.

Even so, the debate about raising the minimum wage goes beyond the immediate lift it would provide to purchases, according to Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

 "There is plenty of merit in the economic argument, but that's hardly the entire argument," Shapiro said. People "are stuck in a cycle of crappy jobs" and "we need to ask ourselves, why do we have this situation? In general, paying people wages that they can live on is something every industrialized society should be able to do."

Nine years ago, Wal-Mart was making purchasing-power arguments similar to the ones being made by Obama and Democrats today. In 2005, H. Lee Scott, then Wal-Mart's chief executive officer, urged Congress to raise the minimum wage, saying the company's customers "are struggling to get by."

"The U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade and we believe it is out of date with the times," Scott said in a speech to company executives. "Our customers simply don't have the money to buy basic necessities between pay checks."

Support from Wal-Mart helped Democrats push through the last increase in the wage floor after the party won control of both chambers of Congress in the 2006 midterm elections. Just three Senate Republicans opposed the 2007 rise, which also drew the backing of more than a third of House Republicans.

This time Wal-Mart has staked out a neutral position. The political optics have changed too. Senate Majority Leader Harry Reid, a Nevada Democrat, plans to bring the latest minimum-wage proposal to the Senate floor next month. The legislation faces long odds on Capitol Hill. Democrats, who control 55 seats in the 100-member Senate chamber, may struggle to garner 60 votes to advance the bill.

 

1
Text Only
Community News Network
  • 072214 Diamond Llama 1.jpg Llama on the loose corralled in Missouri town

    A llama on the lam cruised Main Street Tuesday before it mistook a resident’s fenced backyard for a place to grab a meal and freshen up.

    July 22, 2014 2 Photos

  • When your doctor commits suicide, things get complicated

    When they call for appointments, patients are told they can't see their doctor. Ever. The standard line: "We are sorry, but your doctor died suddenly."

    July 15, 2014

  • NWS-HB0713-HowardMartin-004.jpg Airman laid to rest back home in Indiana six decades after death

    The mystery of what happened to a military transport plane that disappeared in the fall of 1952 into an Alaskan glacier was solved two years ago when a helicopter crew spotted the wreckage. But it took another two years to retrieve the remains of Airman Howard Miller and 16 other servicemen passengers. Saturday, Miller was laid to rest in his hometown of Elwood, Ind., with full military honors. Hundreds turned out for the funeral and burial services.

    July 13, 2014 2 Photos

  • This is what happened when I drove my Mercedes to pick up food stamps

     I climbed the ladder quickly, free to work any hours in any location for any pay. I moved from market to market, always achieving a better title, a better salary. Succeeding.

    July 8, 2014

  • Nation's first soda tax could come to Berkeley

    The Berkeley City Council unanimously decided last week to put the 1-cent-per-ounce tax on the ballot this November. Approving the tax would mean a major defeat for the soda industry, which has spent millions to crush the effort nationwide.

    July 7, 2014

  • President Barack Obama mug Best president? Worst president? Don't read too much into those polls

    The questions about who are the best and worst post-WWII presidents are useless. What they mainly show is that Republicans are far more unified around a single story than are Democrats.

    July 2, 2014 1 Photo

  • What states can do on their own about immigration

    It's official: Congress won't take up immigration reform this year. This week, President Barack Obama said he'll use executive actions to change policies unilaterally.

    July 1, 2014

  • The Internet has changed how we curse

    Relatively recent technologies — cable television, satellite radio, and social media — provide us with a not-too-unrealistic picture of how often people swear in public and what they say when they do.

    June 24, 2014

  • May 2014 was the hottest may in recorded history

    According to new data released this week, May 2014 is officially the warmest May in recorded history.
    Both NASA and the Japan Meteorological Agency have tentatively ranked May at the top of historical measurements, though NASA's numbers are preliminary because crucial information is still missing from China.

    June 18, 2014

  • facebook.png Facebook making big changes to its advertisements

    Facebook is making significant changes to the advertisements on its network, and said Thursday that it will give users more control over which ads they see on its network.

    June 12, 2014 1 Photo

Front page
Clinton Herald Photos


Browse, buy and submit pictures with our photo site.

Poll

What are your plans for the weekend?

Enjoying the outdoors
Staying in out of the heat
Traveling
Other
     View Results
AP Video
Olympics 2014
Featured Comment
Featured Ads
Blue Zones Project
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.