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

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  • Bill Holmes
    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
    Message 1 of 1 , Sep 5, 2012
      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:
      | Living Wage Policies and Big-Box Retail
      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.
      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.
      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.
      Arindrajit Dube and Steve Wertheim. “Walmart and Job Quality: What Do We Know and Should We Care?” October 2005.
      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.
      Arindrajit Dube and Ken Jacobs. “Hidden Cost of Walmart Jobs: Use of Safety Net Programs by Walmart Workers in
      California.” August 2004.
      Jerry Hausman and Ephraim Leibtag. “Consumer Benefits from Increased Competition in Shopping Outlets: Measuring
      the Effect of Walmart.” 2005.
      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).
      Jason Furman. "Walmart: A Progressive Success Story." November 28, 2005.
      Jacobs, Graham-Squire, and Luce
      | APRIL 2011 3
      Main Findings
      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.
      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.
      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
      | 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
      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.
      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
      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
      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.
      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
      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.
      of worker
      below $9/hr
      below $9/hr
      Total number
      of workers
      income at
      current wage
      Total annual
      (before taxes)
      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,”
      . January 29, 2007; Jared Bernstein and L. Josh Bivens. “The Walmart debate: A false choice between prices
      and wages.” June 2006.
      income at
      | 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
      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.
      Todd Hale, “Understanding the Walmart Shopper.” 2004.
      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.
      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
      $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
      Percent of
      Walmart sales
      Walmart sales purchased by
      families below 200% FPL
      (A times B)
      Fraction of
      shoppers earning
      below 200% FPL
      A B C
      | 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

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