[alex]

Hello Jeff:

I came across this statement by the Economic Policy Institute:

“If every Walmart nationwide had a minimum wage of $12 per hour (and passed that entire cost on to the consumer), it would increase the price of an average Walmart shopper’s trip by just 1.1%.”

If Walmart was forced to raise their minimum wage to $12/hour, what would be the effects?

Thank you,
Alex

[swalsh81]

Prices are not determined by cost of production (which includes cost of display sales etc in stores). prices are determined by demand for a product (in relation to the supply of money of course). Thus, costs of production are actually indirectly dictated by demand for a product (that is, unless you are speculating a future demand, if cost of production is higher then the price consumers are willing to pay, the good will not be produced). If the minimum wage were raised to something like $12, it is unlikely we would actually see an across-the-board 1.1% increase in prices at walmart. Prices might inch up if the market could handle it, but the majority of the new cost to walmart would actually come from the employees themselves. (not knowing what benefits walmart provides) it may reduce its employee discount, start charging more for employee uniforms, keep even fewer cashiers on at a time, have fewer people on the floor helping customers, reduce its overnight cleanup crew, or any of a number of other things.

[jmherbener]

One would need to know the pay scale and employment pattern at Wal-Mart to determine the answer to your question.

However, if we make a reasonable guess, namely, that Wal-Mart pays wages below $12 an hour only to entry-level workers. (If this were not the case, then it’s hard to believe that computed prices would rise only 1.1 percent if Wal-Mart raised the minimum wage it pays workers to $12. Put another way, contrary to the bashing by the anti-Wal-Mart crowd, Wal-Mart must be paying reasonable high wages to most of its workers already if raising the minimum to $12 would only increase computed prices by 1.1 percent.) Then if Wal-Mart were forced to pay wages at $12 or above to all its workers, it would have to eliminate entry-level positions. Given that such a minimum wage restriction is the reason it refused to open its planned stores in the D.C. area, we can surmise that Wal-Mart’s current business model depends on these positions. It seems that Wal-Mart would have to significantly change the way it operated to survive a $12 minimum wage.

[alex]

Thank you all for your thoughtful responses.

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