Case 3.8
Walmart: The $15 Minimum WageWalmart obtained approval after a long regulatory battle to build five stores in the Washington, DC, area. After the company had obtained the approvals, Washington, DC, approved a ballot measure and a city council proposal to increase the minimum wage from $11.50 to $15 per hour. Walmart told the city council it could not make two of the stores profitable with that wage level and the plans for the stores were nixed.28Walmart had already announced a plan for increasing the wages of its employees. In late 2015, the company announced that it would increase its minimum wage to $10 per hour. On December 31, the company boosted wages 2% for its 1.2 million employees at both its Walmart and Sam’s Club stores.29 The total cost of the wage boost will be $2.7 billion over 2016 to 2017. When Walmart announced its minimum wage increase, there were objec-tions from current employees who had begun their employment at $9 per hour and would be making the same amount as new hires. The result was the decision to raise the wages of those already working with a 2% increase. Walmart usually gives employees a 2% raise on the anniversary of their hiring date. Awarding the 2% on December 31st expedited the raise for most employees.At the same time Walmart announced the wage increases, it announced that it would be closing 154 stores in the United States and 115 more internationally. Walmart shares experienced the biggest drop in a single day for its stock price in 17 years. Because of investor skittishness, Douglas McMillon, Walmart’s CEO, issued the following statement, “The reaction by the market—while not what we’d hoped—was not entirely surprising. Those investments (wage increases) are critical to our current and future success as a company. Simply put, it’s the right thing to do.”30 Walmart indicated that growth in sales was slowing and that these stores were not profitable. In addition, Walmart had several quarters of reduced profits and reduced its sales forecasts for 2016.31 The company’s share price has fallen 3%.Walmart’s competitors were slightly behind on pay increases. For example, Target’s minimum wage was below $10 per hour at the time Walmart made its increase announcement. According to government data, the average national wage is $14.95 per hour.32Cities and states, such as California and New York, have begun passing state minimum wage laws, that bring the minimum wage to $15 per hour. When Seattle raised its minimum wage, it experienced a wave of restaurant closures. With California’s passage of the new minimum wage, fast-food retailers announced their expansion into automated service tech-nology, something that would reduce the number of employees needed at fast-food sites.
Discussion Questions
1.) Explain the stakeholders involved in the minimum wage decisions.
2.) Discuss the effects of an increase in the minimum wage.
3.) What is the purpose of the minimum wage law?
4.) Discuss government’s role in structuring wage markets.
