The U.S. House Committee on Education and the Workfororce released an update to the 2004 report “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart” which threw a spotlight that exposed the soft underbelly of the largest retailer in the United States. The updated report reveals the high cost of low wages.
Per the report, the average employee costs the taxpayer $5,815 per year. This is averaged to approximately $420,750 per year for your typical 200-person Walmart store. According to the Walmart corporate website, the company has 4,043 stores across the United States. Which means that Walmart is costing everyone in the United States a total $1.77 billion per year. Which means, if you compare that to Walmart’s total worldwide gross profit of $15.7 billion, the United States is seriously subsidizing the giant store’s profits. The total economic loss from this, however, comes from the reduced velocity of money as employees have less to spend, to hundreds of thousands of lost manufacturing jobs, which if combined with the losses of total GDP due to the near exclusive sale of foreign built goods means that Walmart is costing trillions of dollars to the United States every year in tax revenue and economic growth. While we could spend months discussing the issue of trade, of more pressing concern is the cost of lower wages.
Now, Walmart’s wage structure was released earlier, revealing that the average pay one could expect as a Walmart employee (grade 2-4, part-time) was under $12k/year, far below the poverty line. But when confronted with this fact found in their own pay guide, the corporate line, as given by Kory Lundberg to the Huffington Post, is as absolute as it is false:
We offer pay and benefits that meet or exceed the majority of our competition in every location we operate, and that includes unionized competitors.
This would be laughable if it were not so tragic. In even a casual study, the average salary for retail jobs is $27,000/year, double what a typical Walmart employee will earn, and that is so low due in part to Walmart’s incredibly low wages dragging down of the average. If you checked across the retail spectrum, you’d find that the stores that are similar in wages to Walmart are those that also offer commission-based compensation, such as the Gap and Macy’s. This makes Mr. Lundberg’s statement a clear misdirection and deception. It is easy to “compare” when you are only using half the data.
Right now, Walmart is a corporation that would not be able to function, or even turn a profit, without U.S. taxpayer subsidies. It is a failure by design. They can afford to have such low prices because the government pays for their employees, along with absorbing the economic losses from their heavy reliance of imported goods (accounting for 9.3% of all goods imported from 2001-2006). And with the implementation of Obamacare next year, they will shift even more costs onto the taxpayer, thanks to structuring their new health insurance policy so that it all but forces their employees onto the new expanded Medicaid. And all the while, the Waltons can sit back and enjoy the big dividend checks, coming right from Uncle Sam.
Now, some cities have had widespread strikes, including several Walmarts, over low wages. The failure of the minimum wage to keep up with inflation has resulted in buying power dropping from its historical average of $22 per hour in 2013 currency, making it is easy to see why these strikes are happening.
And they are only going to get worse.
Companies such as Walmart will claim that only through low prices can they be competitive. However, a quick look at the market defeats this claim, as numerous other retailers prove that isn’t the case. Other companies, such as Costco, pay higher wages, yet have a substantial profit due to the retention of highly qualified and skilled employees. As a result, Costco has an incredibly low employee turnover, giving them consistently high customer satisfaction rates. Walmart, on the other hand, loses approximately 70% of its new hires within a year.
But what about the return to investors? Walmart is showing a dividend report of 1.04% while Costco is sporting 1.1%. Clearly the methodology behind the Wall Street approach of Walmart does not work. Yet, there remain those who would insist upon further reducing wages, who believe that, just because their policies have never worked, that does not mean they shouldn’t do more damage to the economy in the process of trying to disprove that fact. Even conservative studies have come to the conclusion that a dramatic increase in wages is the correct policy for the future. While Costco has had its sales continue growing, Walmart’s sales have been flat.
In short, Walmart is no longer a good investment, no longer a functioning capitalism-driven corporation. It is now a government subsidized engine designed to take money out of taxpayers’ pockets, while using a variant of the three-card monty to make it appear to shareholders that they are getting a return on their investment. And this subsidizing is now in danger, as Republican politicians the company has been funding take aim to eliminate the subsidizing of the company’s poverty-wages, as well as regular conservative cries for strong tariffs which would decimate Walmart’s imports. When this happens, Walmart will either be forced to increase its wages while its price of goods climbs, or will have no employees nor goods to sell. The workers would realize they would only be able to survive if they had no job, or worked for a company which paid far more than Walmart. Customers would dry up, and stores would close. If combined with the flat wages, it is clear why the Arkansas-based corporation is in serious financial trouble. Adding to the problems is the fact that the firm has a severe debt to debt ratio issue, and an equity to debt ratio which is close to even, a bad sign when you recognize that the corporation holds a huge portion of its own stock. It is a house of cards, and as internal emails revealed earlier this year, Walmart may be close to collapse.
The Walmart business model no longer works. It is based on supply side economics, which even the brains behind Reaganomics has admitted do not work. And, with Walmart’s sole profits coming as a result of government subsidies, we should do what is appropriate: wipe out the shareholders through bankruptcy and turn the assets over to the federal government which has been paying for the company. After all, if your company can only exist due to government subsidies, it is not a private company in the first place. It is corporate welfare designed to put people onto the poverty rolls, and then let the government, let We the People, cover the cost.