There’s been a heavy PR campaign run by corporations to justify the massive tax cut they received from the GOP and Donald Trump. The latest entry is Walmart, with its announcement of an increased $11-an-hour entry-level wage. But, as with the other corporations, things look much different once you get beyond the press release.
In general, companies have claimed that the sudden influx of money, which will likely go to boosting stock prices (top executives and board members are shareholders, too), actually allows them to invest in employees and their businesses. But they generally follow a pattern of doing something seemingly flashy for employees that last a year or less following something far more obviously moderate over time. And investments in infrastructure or new business directions are on a par with what the companies had previously done.
How much is $11 worth these days?
Don’t misunderstand, any increase in the entry-level wages with an employer of Walmart’s size is good. The lower the wage, the more likely people will need public assistance of some kind. Whether you want to call these subsidies to employees rather than employers, it is still subsistence money, not munificent remuneration. Having the government deliver it means employers pay less directly and still have workers live through the night to show up the next morning, which is why it’s rightly called an effective employer subsidy, just as specialized and targeted massive tax breaks and loopholes are direct subsidies.
So, how generous is $11 an hour? I remember working in the trucking business in the early 1980s. There were trucker’s helpers who would ride along and help load trucks and deliver furniture. They got a flat daily rate that worked out to $5 or $6 a 10- to 12-hour day.
It was low pay. In 1983, the average hourly income was more than $8, according to a Federal Reserve Bank of St. Louis compilation of Bureau of Labor Statistics data.
The Bureau of Labor CPI inflation calculator says that $5 in January 1983 was the equivalent of $12.60 in December 2017. The average wage in December was $22.30.
In 1983, $5 an hour was poor pay and $11 is today.
Part of a long-term plan
Although some have taken the $11 an hour number as a big jump for the company, it isn’t, nor is it sudden. In January 2016, Walmart announced that new hires would receive $9 an hour and then move to $10 “after successfully completing the company’s new retail skills and training program known as Pathways.” The average part-time hourly wage then was $10,58 an hour and full-time was $13.38.
In 2015, Walmart raised its entry-level wage to $9.
The move to $11 wasn’t that much and seems to follow a long-term strategy, even if Walmart wants to say that it is due to the tax plan and massive benefits the company is likely to get.
The one-time 1,000 bonus to “all eligible employees” seems more like the one Walmart provided in 2016 as a form of compensation to those who had worked their way up from lower wages and who were by then already at the $10 an hour rate. Plus, if the total $400 million cost for the bonuses was spread over all the company’s U.S. employees, that would be $190 a person, as the New York Daily News calculated. In other words, most people won’t get anything.
Layoffs and demotions offset the wage increase
Tax cuts may have helped offset the costs of tax-deductible spending that seems likely to have happened anyway (as wage strategies are worked out long in advance in any intelligently run company). But helping them are the store closing, firings, and demotions that Walmart also announced.
Walmart closed 63 Sam’s Clubs and the news report came from social media and not a corporate announcement.
The store closures are expected to cut 10,000 jobs, with another 1,000 being lost at the company’s headquarters.
And then, another 3,500 store co-managers will lose their jobs. These would be higher-paying positions in the stores. But, Walmart will hire 1,700 assistant store managers, a lower salaried job.
In January 2017, Walmart announced that it would add 10,000 jobs, after announcing the elimination of 7,000 office jobs in September 2016.
Win a few, lose a few.
It’s the economy, stupid
As much as Walmart, as is true with other companies, wants to spin a raise as beneficence made possible only by the tax cuts, that ignores macroeconomic pressures.
The unemployment rate is 4.1 percent. With a relatively low labor participation rate — the percentage of the adult population working — for modern times and wages that are finally rising again (although still at low levels compared to the last couple of decades), low-wage employers find more competition to get the help they need.
In addition, 18 states this year have raised their minimum wages, creating additional upward pressure.
Walmart has to pay more. This largesse but a recognition of a necessary business expense — that will be deducted from taxes. If the company doesn’t pay enough, chances are now greater that people could find something else paying better.
There should be no surprise at that. Spending when you must is how prudent business is done.
Tax breaks will go to shareholders
All of this also has to be weighed against the additional money Walmart will get from the tax cuts. According to what a senior fellow at the Institute on Taxation and Economic Policy told the New York Times, Walmart could easily save $2.2 billion a year from the tax cuts. The company says that the wage increases and bonuses would run $700 million.
However, there are the savings from the layoffs and the bonuses are one-time expenses. Because the bonuses will cost $400 million, $300 million, fewer labor cuts, is the annual cost of the raise.
So where does the remaining $2 billion a year go? Into expansion? No, ten years of the savings will help pay for the $20 billion stock buyback announced last fall.
But then, tax savings for employees sounds so much more on message.