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94STUDY: How a $12.00 An Hour Wage Standard Would Impact Walmart Workers and Shoppers

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  • Bill Holmes
    Sep 5, 2012
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      Below you will find a summary and conclusion of the definitive $12.00 an hour Walmart study by Ken Jacobs et al that was updated in 2011.  To view the nice graphs you will need to go to this link for the original plus footnotes for further research:
       
       
       
       
      UNIVERSITY OF CALIFORNIA, BERKELEY
       
      CENTER FOR LABOR RESEARCH AND EDUCATION
       
      RESEARCH
       
      BRIEF
       
      2 RESEARCH BRIEF
       
      | Living Wage Policies and Big-Box Retail
       
      general.
       
      1 Several recent studies have found that the entry of Walmart into a county reduces both
       
      average and aggregate earnings of retail workers and reduces the share of retail workers with health
       
      coverage on the job. The impact is not only one of substitution of higher wage for lower wage retail
       
      jobs, but also a reduction in wages among competitors.
       
      2 As a result of lower compensation,
       
      Walmart workers make greater use of public health and welfare programs compared to retail
       
      workers as a whole, transferring costs to taxpayers.
       
      3
       
      Big box retail in general, and Walmart in particular, also brings benefits to consumers in the form of
       
      lower prices. Studies of Walmart prices find them to be 8 to 27 percent lower for food compared to
       
      major supermarkets. Just as competition from Walmart has led competitors to reduce wages, it also
       
      leads them to reduce prices.
       
      4 Basker (2007) cites the results of a Pew Research Center Survey to
       
      conclude that poorer consumers disproportionately benefit from Walmart’s lower prices.
       
      5 Furman
       
      (2005) makes a similar argument, and further states that Walmart could not raise wages without raising
       
      prices which, he argues, would hurt poor and low-income consumers.
       
      6
       
      To understand how a mandated wage increase would impact poor and low-income families, we need
       
      to understand both the size and distribution of any projected increase in consumer prices. We need
       
      to understand the economic status of Walmart workers and consumers and how an increase would
       
      impact each group. If most Walmart workers came from higher-income families and consumers from
       
      low-income families, a mandated wage increase might result in a net transfer away from
       
      low-income families. If the opposite is true, it might result in a net transfer to low-income families.
       
      In this study we update a previous analysis of how a higher wage standard would impact both
       
      Walmart workers and consumers, and how those impacts are distributed across income levels. We
       
      use a $12 per hour minimum as the hypothetical wage standard for the analysis.
       
      1
       
      Arindrajit Dube and Steve Wertheim. “Walmart and Job Quality: What Do We Know and Should We Care?” October 2005.
       
      2
       
      Arindrajit Dube, T. William Lester and Barry Eidlin. “Firm Entry and Wages: Impact of Walmart Growth on Earnings
       
      Throughout the Retail Sector.” August 2007; David Neumark, Junfu Zhang and Stephen Ciccarella. “The Effects of Walmart
       
      on Local Labor Markets.” October 2005.
       
      3
       
      Arindrajit Dube and Ken Jacobs. “Hidden Cost of Walmart Jobs: Use of Safety Net Programs by Walmart Workers in
       
      California.” August 2004.
       
      4
       
      Jerry Hausman and Ephraim Leibtag. “Consumer Benefits from Increased Competition in Shopping Outlets: Measuring
       
      the Effect of Walmart.” 2005.
       
      5
       
      Emek Basker. “The Causes and Consequences of Walmart's Growth.” 2007. The Pew Survey found that 53 percent of
       
      respondents with annual earnings under $20,000 reported regularly shopping at Walmart, compared with 33 percent of
       
      those with annual incomes above $50,000. (Pew Research Center 2005). Note that the Pew data does not control for the reasons
       
      shoppers gave for frequently shopping at Walmart; it is possible that low-income shoppers shop more regularly at
       
      Walmart because they have fewer stores to choose from, or may lack transportation to reach other stores as easily.
       
      Consumer data collected by Neilson shows that those surveyed say that their main reason for choosing Walmart was location
       
      (34 percent). Twenty-five percent of respondents say their main reason is low prices (Hale 2004).
       
      6
       
      Jason Furman. "Walmart: A Progressive Success Story." November 28, 2005.
       
      Jacobs, Graham-Squire, and Luce
       
      | APRIL 2011 3
       
      Main Findings
       
      I
       
      MPACT ON WORKERS
       
      Our analysis reveals that establishing a higher minimum wage for large retailers like Walmart would
       
      have a significant impact on workers living in poverty or near-poverty. We find that 41.4 percent of
       
      the pay increase would go to workers in families with total incomes below 200 percent of the federal
       
      poverty level (200 percent FPL). These poor and low-income workers could expect to earn an
       
      additional $1,670 to $6,500 a year in income for each Walmart employee in the family, before taxes.
       
      I
       
      MPACT ON CONSUMERS
       
      Even if Walmart were to pass 100 percent of the wage increase on to consumers, the average impact
       
      on a Walmart shopper would be quite small: 1.1 percent of prices, well below Walmart's estimated
       
      savings to consumers. This works out to $0.46 per shopping trip, or $12.49 per year, for the average
       
      consumer who spends approximately $1,187 per year at Walmart. This is the most extreme estimate,
       
      as portions of the raise could be absorbed through other mechanisms, including increased productivity
       
      or lower profit margins.
       
      While Walmart shoppers are disproportionately middle- and lower-income, the customers who
       
      spend the most at the store are somewhat less likely to come from poor and low-income families. We
       
      find that 28.1 percent of the total price increase would be borne by consumers in families below 200
       
      percent FPL. In comparison, 41.4 percent of the benefits would go to Walmart workers in families
       
      below 200 percent FPL.
       
      In summary, we find that a Big Box Ordinance or similar legislation that raises wages would provide
       
      significant, concentrated benefits to workers, almost half of them in poor or near-poor families, while
       
      the costs would be dispersed in small amounts among many consumers across the income
       
      spectrum. In net, a wage increase for Walmart workers represents a transfer of income to poor and
       
      low-income families. Low-income Walmart workers would see a raise of $1,670 to $6,500 per year,
       
      while the average Walmart shopper would spend an additional $12.49 per year. Both the benefits to
       
      workers and the costs to consumers would be smaller in higher wage states and metropolitan areas.
       
      IMPACT ON WORKERS
       
      What if Walmart put in place a $12 per hour minimum wage for all its hourly employees in the U.S.?
       
      How much would it cost Walmart, and how much of the increase would benefit workers in poor and
       
      low-income families?
       
      In order to calculate the cost of a wage increase for Walmart, we use detailed data on Walmart workers’
       
      starting wages and average pay in 2001 for 156 job titles from Richard Drogin’s analysis of
       
      Walmart payroll data. Wages are adjusted to 2010 dollars using average annual wages reported by
       
      Walmart. Although much of the variation in wages within the Walmart workforce is captured by the
       
      job-based wage distribution, each job category has workers earning at different levels. To capture
       
      this added variation within job titles, we use household level wage data from the March Current
       
      Population Survey (CPS), and assumptions based on existing estimates in the literature on withincompany
       
      and between-company components of wage variance. We also use the March CPS to
       
      estimate the family income of Walmart workers by statistically profiling them based on their wage
       
      4 RESEARCH BRIEF
       
      | Living Wage Policies and Big-Box Retail
       
      levels, gender, full-time status and industry of work. For a full description of the methodology, see
       
      Appendix A. The key finding of this report—that a higher wage standard at Walmart represents a progressive
       
      income redistribution even accounting for effects on consumers—is quite robust to a plausible
       
      range of assumptions we use in our analysis.
       
      Based on the distribution of wages for the Walmart workforce, we estimate that a $12 minimum wage
       
      would increase Walmart's total payroll for hourly workers by 11.1 percent (Table 1). With
       
      a total hourly payroll of 28.9 billion for the company in 2010, this comes to $3.21 billion per year.
       
      About 41.4 percent of this increase would go to workers with family incomes below 200 percent FPL
       
      (Table 2).
       
      What would the raise to $12 per hour look like for the Walmart workforce? Walmart notes that its
       
      average hourly wage is $11.75 for full-time associates. However, not all employees earn the average.
       
      In fact, payroll data from 2001 suggests that there is a good deal of variation in hourly wages by
       
      gender, race and job title. As shown in Table 3 (page 5), adjusted for current income, workers
       
      currently earning below $9 an hour would receive a 37 percent wage increase on average, depending
       
      on the number of hours worked. Those earning between $9 and $12 an hour would receive a 14 to 16
       
      percent average wage increase. In dollar amounts, the wage increase to $12 per hour would result in
       
      $3,250 to $6,500 average annual pay increases for workers with wages below $9 an hour, and $1,670
       
      to $2,640 average pay increase for workers with wages between $9 and $12 an hour. (The range
       
      reflects the difference between full and part-time workers). The post-tax increase would be lower for
       
      some workers that qualify for the Earned Income Tax Credit, depending on the precise family income
       
      level.
       
      The distributional impacts would be reduced to the degree that firms respond to the mandated
       
      increase by hiring more skilled labor. The empirical evidence on similar policies suggests such
       
      impacts would be small.
       
      7
       
      Table 1. Increase necessary for a $12 minimum
       
      wage for Walmart hourly employees
       
      Source: Authors’ analysis based on data from Drogin 2003,
       
      www.walmartfacts.com and March Current Population Survey,
       
      Annual Social and Economic Supplement.
       
      Increase in Walmart’s hourly payroll
       
      as percent of total hourly payroll
       
      Increase in hourly payroll as dollar
       
      annual amount
       
      11.1 percent
       
      $3.21 billion
       
      Table 2. Percentage of payroll increase
       
      going to workers in poor and low-income
       
      families
       
      Source: Authors’ analysis based on data from Drogin 2003,
       
      www.walmartfacts.com and March Current Population
       
      Survey, Annual Social and Economic Supplement.
       
      Below 200% FPL
       
      Over 200% FPL
       
      Total
       
      41.4%
       
      58.6%
       
      100%
       
      7
       
      Michael Reich, Peter Hall and Ken Jacobs. “Living Wage Policies at the San Francisco Airport: Impacts on Workers and
       
      Businesses.” 2005; David Fairris, David Runsten, Carolina Briones and Jessica Goodheart. “Examining the Evidence: The
       
      Impact of the Los Angeles Living Wage Ordinance on Workers and Businesses.” 2005.
       
      IMPACT ON CONSUMERS
       
      Another important question to address is how a $12 per hour minimum wage would impact
       
      consumer prices charged by Walmart. It is not necessarily the case that Walmart would pass on the
       
      total cost of a wage increase to its shoppers through higher prices. Part of the cost could be absorbed
       
      through accepting a lower profit margin; leveling or reducing management salaries and bonuses;
       
      and through improved labor productivity due to increased effort, lower turnover, and lower
       
      absenteeism.
       
      8 To the degree that Walmart's lower relative wages have led to greater opposition to the
       
      company's expansion in urban areas, measures to respond to critics may improve the business climate
       
      for the company, opening new markets in urban areas and lessening the time needed to secure
       
      necessary zoning changes.
       
      For the purposes of this paper, however, we examine the outermost case of what would happen if
       
      Walmart were to pass the entire cost of the wage increase on to consumers.
       
      As we showed in the previous section, the cost for Walmart of a $12 per hour wage increase would
       
      amount to $3.21 billion a year in payroll costs, or 11.1 percent of Walmart's current hourly payroll. If
       
      we distribute this among all consumers, we find that it amounts to 46 cents per shopping trip for the
       
      average consumer, based on the annual sales and customer figures provided by Walmart for 2010
       
      (Table 4, page 6).
       
      Jacobs, Graham-Squire, and Luce
       
      | APRIL 2011 5
       
      Table 3. Impact of raises on low-wage Walmart workers*
       
      *Assumes that full-time is 40 hours per week, and part-time is 20 hours per week for 50 weeks. All numbers are in 2010 dollars.
       
      Source: Authors’ analysis based on data from Drogin 2003, www.walmartfacts.com and March Current Population Survey, Annual Social
       
      and Economic Supplement.
       
      Category
       
      of worker
       
      Part-time,
       
      below $9/hr
       
      Full-time,
       
      below $9/hr
       
      Part-time,
       
      $9–12/hr
       
      Full-time,
       
      $9–12/hr
       
      Total number
       
      of workers
       
      (estimated)
       
      159,012
       
      143,980
       
      212,536
       
      385,807
       
      Average
       
      wage
       
      (estimated)
       
      $8.75
       
      $8.75
       
      $10.33
       
      $10.53
       
      Annual
       
      income at
       
      current wage
       
      $8,750
       
      $17,500
       
      $10,330
       
      $21,060
       
      Total annual
       
      increase
       
      $3,250
       
      $6,500
       
      $1,670
       
      $2,940
       
      Percentage
       
      increase
       
      (before taxes)
       
      37%
       
      37%
       
      16%
       
      14%
       
      8
       
      A Bank of America analysis estimates that the after-tax impact of a $0.50 per worker wage increase by Walmart would be
       
      $0.013 earnings per share. David Strasser and Camilo R. Lyon. Bank of America Retailing Report on Walmart Stores, Inc.
       
      March 8, 2007. While little research has been done on the impact of reputation on stock price, Communications Consulting
       
      Worldwide suggests that in the case of Walmart it could be significant. Pete Engardio, “Beyond the Green Corporation,”
       
      BusinessWeek
       
      . January 29, 2007; Jared Bernstein and L. Josh Bivens. “The Walmart debate: A false choice between prices
       
      and wages.” June 2006.
       
      Annual
       
      income at
       
      $12/hour
       
      $12,000
       
      $24,000
       
      $12,000
       
      $24,000
       
      6 RESEARCH BRIEF
       
      | Living Wage Policies and Big-Box Retail
       
      To estimate the impact per shopping trip, we use Walmart's annual U.S. sales data and weekly
       
      customer data. We divide sales by 365 and customers by seven to get the average sale per customer
       
      per day. We then divide the total annual payroll increase by 365 to get the cost of the wage increase
       
      per day.
       
      Using Walmart's figures on U.S. sales and customers, we find that the average customer spends
       
      $43.95 per shopping trip, and makes 27 shopping trips per year,
       
      9 spending $1,187 annually at the
       
      store (Table 4). The 46 cent increase amounts to a 1.1 percent increase in prices. For the average
       
      shopper, this would result in a price increase of $12.49 a year.
       
      The Nielsen Company provides a breakdown of Walmart shoppers by household income using its
       
      Homescan Consumer Panel. The panel consists of a sample of over 100,000 randomly selected
       
      households who use in-home scanning devices to record where they shop, what they buy, what they
       
      spend, and whether or not they used a coupon or took advantage of a store deal in their purchase of
       
      a product. Of the total households in the sample, 51,000 made at least one shopping trip to Walmart
       
      during the year.
       
      The Nielsen Company analysis shows how Walmart sales are distributed across shoppers from
       
      different household income brackets (Table 5, page 7). Data from the Current Population Survey
       
      allows us to estimate the share of shoppers in these household brackets who are in families below
       
      200 percent FPL.
       
      10 By multiplying the percentage of sales of each income bracket by the fraction
       
      below 200 percent FPL, we estimate that 28.1 percent of Walmart’s sales are purchased by families
       
      earning below 200 percent of the federal poverty level.
       
      Table 4. Annual cost for average shopper
       
      Total cost of raises, wages and benefits
       
      Total U.S. sales, year ending in Jan 2010
       
      Sales per day
       
      Total U.S. customers per week
       
      Average customers per day
       
      Average sale per customer, per day
       
      Cost of total raises, per day
       
      Cost of raise per customer
       
      Raise as % of sale, per customer
       
      Annual cost, for average shopper
       
      $3,200,000,000
       
      $304,900,000,000
       
      $835,000,000
       
      133,000,000
       
      19,000,000
       
      $43.95
       
      $8,800,000
       
      $0.46
       
      1.1%
       
      12.49
       
      Source: Authors’ analysis based on data from Drogin 2003, Hale 2004, Nielsen Company 2010, www.walmartfacts.com and March
       
      Current Population Survey, Annual Social and Economic Supplement. All data is for the U.S. only.
       
      9
       
      Todd Hale, “Understanding the Walmart Shopper.” 2004.
       
      10
       
      To find the percentage living in poverty, we use the March Current Population Survey ASEC (Table 6). In order to
       
      make overall consumers more representative of Walmart consumers, the sample was re-weighted to make each state's
       
      percentage of U.S. households equal to each state's percentage of U.S. Walmart stores.
       
      CONCLUSION
       
      Should policy makers consider supporting legislation that would raise wages at Walmart? Should
       
      they be concerned that low-income shoppers will bear the cost if Walmart is required to increase its
       
      minimum wage to $12 an hour?
       
      Our data suggests that a $12 per hour minimum wage standard at Walmart would be effective in
       
      aiding lower-income families. If Walmart increased its minimum wage to $12 per hour, 41.4 percent
       
      of the income gain would accrue to workers with wages below 200 percent FPL. These low-wage
       
      workers could expect to earn an additional $1,670 to $6,500 a year in income.
       
      If Walmart passed on 100 percent of the wage increase to consumers through price increases, which
       
      is unlikely, the impact for the average Walmart shopper would be $12.49 a year (Table 6, page 8). We
       
      estimate that 28.1 percent of the impact of the price increase would be borne by shoppers with
       
      incomes below 200 percent FPL.
       
      Finally, we should consider the impact of a mandated wage increase on the economic viability of big
       
      box retailers. Some analysts suggest that Walmart could not just raise wages, and prices, given that
       
      it operates in a competitive environment. However, a living wage policy would require all large retailers
       
      to operate under the same standards. When a big box living wage policy was previously
       
      Jacobs, Graham-Squire, and Luce
       
      | APRIL 2011 7
       
      Table 5. Walmart shoppers and sales by household income, 2010
       
      Source: Nielsen Company 2010 and March Current Population Survey. Percentages may not add up due to rounding.
       
      Note: FPL status depends on family size, which explains how a household earning $100,000 or more could still be below 200 percent FPL.
       
      Annual Household
       
      Income
       
      $100,000 or more
       
      $70,000 to $99,999
       
      $50,000 to $69,999
       
      $40,000 to $49,999
       
      $30,000 to $39,999
       
      $20,000 to $29,999
       
      Below $20,000
       
      Total
       
      Percent of
       
      Walmart sales
       
      18%
       
      17%
       
      18%
       
      11%
       
      11%
       
      13%
       
      13%
       
      100%
       
      Walmart sales purchased by
       
      families below 200% FPL
       
      (A times B)
       
      0.1%
       
      0.4%
       
      1.4%
       
      2.1%
       
      3.1%
       
      8.2%
       
      12.9%
       
      28.1%
       
      Fraction of
       
      shoppers earning
       
      below 200% FPL
       
      0.7%
       
      2.2%
       
      7.6%
       
      19.3%
       
      27.6%
       
      64.4%
       
      100.0%
       
      A B C
       
      8 RESEARCH BRIEF
       
      | Living Wage Policies and Big-Box Retail
       
      proposed in Chicago, Steve Hoch of the Wharton Business School argued that it was unlikely to have
       
      a negative impact on retailers or Chicago: "The standard argument by the retailer is that they can't
       
      afford to do it, but if everybody has to, then the playing field is level." His argument is born out by
       
      recent research on the economic impacts of minimum wage and living wage ordinances.
       
      In conclusion, big box living wage laws provide a means of capturing the positive benefits to
       
      consumers of the big box retail model, while mitigating the negative impacts on workers.
       
      This report updates a 2007 Center for Labor Research and Education report, “
       
      Living Wage Policies and
       
      Walmart: How a Higher Wage Standard Would Impact Walmart Workers and Shoppers
       
      ,”

      --
      Defending the Community: