Are Taxpayers Subsidizing Wal-Mart Employees?

“Rising income inequality and wage stagnation threaten the future of America’s middle class. While corporate profits break records, the share of national income going to workers’ wages has reached record lows.”Man Measuring Money

The issue is certainly not new, but the economic conditions of the post-crisis era have revitalized debate. A growing body of evidence suggests that income inequality is growing in America and that the middle class is evaporating. Adding to that body is a May 2013 report from the U.S. House Committee on Education and the Workforce titled: “The Low-Wage Drag on our Economy: Wal-Mart’s low wages and their effect on taxpayers and economic growth.”

The report’s thesis is spelled out in the title, and it’s important to point out that the report was prepared by the Democratic staff of the Committee. The detail, stamped on the report’s cover, bears some significance because of the fairly clear divide on minimum- and low-wage policy between the two parties. It’s also worth pointing out that Representative John Kline, a Republican from Minnesota, chairs the committee, and probably did not give his blessing to the authors of the report.

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The issue was once again thrust into the spotlight during President Barack Obama’s State of the Union Address, in which he called for an increase in the federal minimum wage from $7.25 per hour to $9.00 per hour, and for the rate to be indexed to inflation. The report uses Wal-Mart (NYSE:WMT) as an anchor to ground a broader discussion about minimum wage policy, low wages, standards of living, and the economy.

Wal-Mart’s history with the minimum wageWal-Mart strike 3

In 2007, when the House voted to increase the federal minimum wage from $5.15 to $7.25 per hour over two years, Kline predicted that the wage hike would “leave recent economic growth dead in its tracks.” His forecast had some awkward truth to it as the credit and housing bubbles burst and derailed the economy, but many would argue that the minimum wage increase did not contribute in any substantial way to the crisis.

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Big business has infamously stood against increases to the minimum wage, claiming that increasing the cost of labor would make the cost of doing business prohibitively high and, at minimum, freeze hiring. However, Wal-Mart — which is the biggest private employer in the United States — actually endorsed the minimum wage increase that Kline objected to.

H. Lee Scott Jr., who was CEO of the retailer at the time, argued that “the U.S. minimum wage of $5.15 an hour has not been raised in nearly a decade, and we believe it is out of date with the times… Our customers simply don’t have the money to buy basic necessities between paychecks.”

The company’s argument seemed less focused on its own employees and more on the amount of discretionary spending budgets of its customers. To put it lightly, despite some historic support for a reasonable minimum wage, Wal-Mart has a rocky history with its employees. In November, workers staged a series of protests focused on the pursuit of higher wages and better working conditions. Some workers called for an increase in the minimum hourly wage to $13. Company spokespeople largely dismissed the protests.

Wal-Mart has yet to make a public statement regarding President Barack Obama’s call to increase the minimum wage to $9.00 per hour.

The cost to taxpayers of the current minimum wageWMT Taxpayer Subsidy

One of the arguments in favor of increasing the federal minimum wage is that low wages leave workers unable to afford the cost of living. This means that taxpayers often have to shoulder the burden through public assistance programs like Medicaid.

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The low-wage report made clear that “accurate and timely data on Wal-Mart’s wage and employment practices is not always readily available,” but the authors performed an analysis on demographic data to estimate the tax burden of minimum-wage employees at a typical Wal-Mart. The Committee estimates that a single 300-person Wal-Mart Supercenter store in Wisconsin (there are 75 in the state) costs taxpayers between $904,542 and $1,744,590 per year.

Demographic data from Wisconsin shows that as of the fourth-quarter of 2012, Wal-Mart had 3,216 employees enrolled in the state’s Medicare program, BadgerCare+. Including children and adult dependents, Wal-Mart accounts for 9,207 people on the BadgerCare+ roster.

The minimum wage and small business

While Wal-Mart remains mute on the subject of a minimum wage increase for now, other groups have come out against the it, and chief among them is the National Federation of Independent Business. The NFIB has about 350,000 small business members, and argues that the minimum wage increase would hit small businesses — many of which operate on thin or negative margins as they struggle to situate themselves — particularly hard.

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Here are some highlights from the NFIB’s argument against the minimum wage increase:

Why this is a small-business issue

  • Big corporations do not have to absorb the cost of minimum wage increases because most minimum-wage jobs are offered by small businesses
  • Small businesses are the least able to absorb such a dramatic increase in their labor costs
  • The small-business sector has historically created two-thirds of net new private jobs in the U.S. economy. But it has failed to recover in recent years because of a series of policies that increase the burden on small-business owners — higher taxes, increases to health-care costs, more costly regulations, and now the minimum wage increase proposal
  • The minimum wage directly affects small businesses because a large amount of their earnings go directly to pay for operating expenses, such as equipment, supplies, lease or mortgage, credit lines, inventory and employee wages and benefits

Mandatory wage increases hurt not only small businesses, but their employees as well

  • Raising the minimum denies more low-skilled workers the opportunity to get a job and receive “on the job” training
  • Workers must bring at least as much value to the firm as they are paid or the firm will fail and all jobs will be lost. Raising the minimum wage raises the hurdle a worker must cross to justify being hired
  • A higher minimum wage would force employers to stop expanding or to downsize. It will have a direct impact on unemployment rates

While in many ways the NFIB makes a well-reasoned argument, it’s important to point out that its members may not think the minimum wage issue is as important as other major concerns. The NFIB recently asked its members what the single-most important problem facing them in May 2013 was, and this is how they responded:

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However, with this in mind, the NFIB also reported that hiring remains relatively weak. Hiring costs are clearly on the minds of employers. “The healthcare law provides incentives to increase the use of temporary and part-time workers, but this indicator has not registered a trend toward the use of more temps. Job creation plans fell 1 point to a net 5 percent planning to increase total employment, a weak reading.”

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