Submitted by Tyler Durden on 08/31/2015 11:20 -0400
This year, some American executives who heeded loud calls for across-the-board wage hikes for America’s lowest-paid workers received a complimentary refresher course in undergad economics courtesy of the free market.
Take Dan Price for instance, the 31-year old CEO of Seattle-based Gravity Payments Systems who found out the hard way that setting the pay floor at $70K comes with all manner of unintended consequences.
And then there’s Wal-Mart.
Earlier this year, the retail behemoth became one of several corporate heavyweights to raise wages for its meagerly compensated workers, around 500,000 of which are now set to receive at least $9/hour and $10/hour by Q1 2016. The move will cost somewhere around $1 billion this year.
Now one thing that should have been abundantly clear from the start is that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it’s Wal-Mart. After all, they’re the “low price leader”, and you don’t hold on to that title by passing labor costs on to customers.
But the story didn’t stop there. Late last month we highlighted an internal memo circulated at Arkansas recruiting firm Cameron Smith & Associates which looked to be an attempt to prepare the firm’s employees for layoffs at Wal-Mart’s home office. Then, not a week later, Bloomberg ran a story detailing the grievances of some senior Wal-Mart employees who suddenly realized that although they may still be making more than their subordinates, the wage hierarchy had been distorted and that distortion had nothing to do with merit. As we put it, “higher paid employees don’t understand why everyone under them in the corporate structure suddenly makes more money and if people who are higher up on the corporate ladder don’t receive raises that keep the hierarchy proportional they may simply quit which means that, for Wal-Mart, raising the minimum for the lowest paid workers to just $9/hour will end up costing the company around $1.5 billion if you include the additional raises the company will have to give to higher paid employees in order to retain their ‘talents’and avoid a mid-level management mutiny.”
Well, don’t look now, but undergrad economics is rearing its ugly again at Wal-Mart as the retailer cuts workers’ hours in a desperate attempt to offset wage hikes. Here’s Bloomberg with more: