Raising the minimum wage to $10.10 an hour would increase the price of a $16 product at Walmart, such as the typical DVD, by just a cent if all of the extra costs were passed on to consumers, according to an analysis by an economist for Bloomberg News.
Ken Jacobs, chair of the Labor Center at the University of California, Berkeley, estimates that a minimum wage at that level would add $200 million to Walmart’s yearly labor costs, which comes to just 0.8 percent of what it currently spends. That also represents just 0.06 percent of the company’s billions in yearly sales, Jacobs told ThinkProgress, so if the company decided to pass the entire cost increase on to its customers, it would mean an extra penny for a $16 product.
The company may also very well decide not to pass the cost in that way. “It’s likely that some share of that cost would be passed through, but it’s not likely to be one hundred percent,” Jacobs said. An increased wage could increase its sales, as workers would have more money in their pockets to spend on its products, which could mitigate the cost. Bloomberg recently reported that the company is considering supporting a minimum wage increase, given that millions of its customers would “now have additional income,” according to a company spokesperson, although he said the company hasn’t made a decision. A $10.10 minimum wage would give 16.5 million workers across the country $31 billion more in earnings. Given all of that, “That penny per $16 an item may not turn out to be necessary,” Jacobs added.
There are also other ways the company could increase pay for its employees without needing to raise its prices. A report from think tank Demos argued that instead of putting $7.6 billion on buying back shares of its own stock, it could use that money to give its workers a $5.83 raise, which would ensure they would all make over $25,000 a year when working full time. That has been one of the key demands made by striking workers over the past year.
Businesses like Walmart don’t just potentially benefit from higher sales when Americans have more money. They can also see benefits within their own workforces, such as improved efficiency and lower turnover.
Realizing that the benefits are likely to outweigh the cost, one mega retailer recently took voluntary action. Gap announced that it would raise its hourly minimum wage to $10 by June of 2015. GAP Chairman and CEO Glenn Murphy said of the move, “Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over.” Other companies such as Costco, In-N-Out Burger, and Boloco already pay their entry level workers more than the federal minimum wage of $7.25.
Jacobs based his estimate off of a paper he published in 2011 using wage data Walmart had to release as part of a sex discrimination lawsuit. While similar wage data doesn’t exist for other large retailers, “It’s unlikely that it would be any different for Target, for example,” he said. “You would get a very similar picture across the board.”
Lawmakers are also pushing to require all businesses to pay at least $10.10 an hour. President Obama has thrown his support behind that level, and a bill was introduced last year, although Republicans unanimously voted it down. That wage would bring it in line with where it would be if it had kept up with inflation, although far behind what it would be if it had kept up with increasing productivity.
This post has been updated with an interview with the economist, Ken Jacobs.