Jul 31

Economics 101: Wal-Mart Hikes Minimum Wages, Prepares To Fire 1000 (ZeroHedge, July 31, 2015):

Please remember, these people are our neighbors and friends. You have a skill that will be very much in need when this goes down. You are experts in the job market and you know what it takes to get hired. This is a time for us to step up and do what we can to help.”

The quote above is from an internal memo sent to employees of Northwest Arkansas recruiting firm Cameron Smith & Associates and references an expected wave of layoffs at WalMart’s home office in Bentonville.

The memo was obtained by the Arkansas Democrat-Gazette, who spoke with Cameron Smith himself via e-mail.

“The last time Walmart had a large layoff (800 plus), we were unprepared and overwhelmed with phone calls, emails, resumes and walk-ins,” Smith told the paper, referring to a series of cuts at WalMart in 2009. The next round of layoffs are just around the corner and could affect as many as 1,000 employees Smith contends, citing conversations with company insiders.

As those who follow the retailer closely are no doubt aware, context is key here.

Back in April, we asked why WalMart was mysteriously shuttering geographically distinct stores nationwide for “plumbing problems.” The company, citing the need to repair persistent “clogs and leaks”, closed five stores across the country almost simultaneously. The 2,500 affected employees were in some instances given almost no notice whatsoever.

After a few enterprising reporters determined that no plumbing permits had been filed in any of the locales where the shuttered stores were located, conspiracy theories sprung up, the most outlandish of which posited a link between the store closings and the Jade Helm 15 military drills which began earlier this month in Texas and six other states.

For our part, we argued that the store closures were more likely the result of two things: i) the need to cut costs, and ii) the desire to close a “problem” store in California that had for years served as a hotbed for union activism. For now, we won’t dive into the union issue, but for those interested, see here, here, and her.

As for cost cutting, consider the following, excerpted from “Why Is WalMart Mysteriously Shuttering Stores Nationwide For Plumbing Issues?“:

Earlier this year, WalMart became one of several corporate heavyweights to lift 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 (that of course assumes they make it on $9 an hour for another 12 months and don’t seek out other employment by sheer necessity). 

Meanwhile, the move by the country’s largest retailer to pay a few extra pennies to its (basically) minimum wage employees comes at a cost to the company’s suppliers because when you operate on the thinnest of margins in order to be the “low price leader,” someone has to pay for those wage hikes and you can’t pass along the costs to customers because many of your low-income patrons are operating from the same tax bracket as your low-paid employees. As such, the supply chain is forced to lower their prices and of course they’re going to comply because well, you’re WalMart meaning you’re your vendors’ biggest account pretty much by default. The outcome is that “while WMT (or MCD or GAP or Target) boosts the living standards of its employees by the smallest of fractions, it cripples the cost and wage structure of the entire ecosystem of vendors that feed into it, and what takes place is a veritable avalanche effect where a few cent increase for the lowest paid megacorp employees results in a tidal wave of layoffs for said megacorp’s vendors.”

If that doesn’t turn out to be enough in the face of an economy which isn’t really recovering and in which low-income shoppers are constrained by lackluster (and by that we mean nonexistent) wage growth, some sacrifices may have to be made. 

The first such sacrifice (apparently) were the 2,500 or so employees at the five locations with intractable plumbing problems, but clearly that was not enough which is why now, the company is moving to cut 1,000 higher paying jobs in Bentonville.

Of course WalMart can’t come out and say that a lackluster economy and nonexistent wage growth for 83% of the nation’s workforce has ironically served to make the company’s own minimum wage hikes untenable and therefore some heads in middle management have to roll, so instead the cuts will be blamed on bureaucratic inefficiencies. Here’s the Democrat-Gazette again:

Cutting through red tape and trimming bureaucracy has been among the goals of McMillon, who took over as CEO in February 2014. Wal-Mart employs more than 2 million worldwide and has more than 1.4 million employees in the U.S.

McMillon mentioned the size of the company’s headquarters as a possible detriment to quicker action at the store level and told retail analysts during a June question-and-answer session that employees should remember “there are no cash registers in the office.” During a store visit last year, McMillon said he encountered an electronics department manager who spent five hours on the phone with the home office to get assistance with a problem.

“We want people to make decisions and move with speed and not have the organization run in a way that causes it to slow down,” McMillon said.

He again referred to the “dangers of a big company” during a June 11 retail conference in Springdale.

“As we’ve grown and time has gone on, we’ve created pockets of our business, situations where people don’t want to share bad news. Lots of PowerPoints get built, lots of pre-meetings are held to socialize things so people aren’t surprised during a meeting,” McMillon said. “That is bureaucracy. That slows us down.”

Got it. Too many people are working on PowerPoints and when someone making $10 an hour calls the home office, the hold time is too long. These are clear signs of an elephantine, Washington-esque bureaucracy, which must be done away with.

Or something.

Just don’t dare suggest that the cuts are the indirect or even direct result of the wage hikes that will cost the retailer around $1 billion this year, because that would mean that critics of the push to hike the pay floor are correct to assert that forcing employers to pay more will immediately result in equal and offsetting layoffs.

Only here they aren’t necessarily “equal” at all.

That’s in no way a commentary on the “worth” (in a philosophical sense of the word) of an hourly worker versus a salaried employee, but if layoffs in Arkansas do materialize as Cameron Smith predicts, it seems entirely fair to suggest that the pittance given to hundreds of thousands of low paid workers will ultimately come at the cost of 1,000 or so breadwinner positions. We’ll leave it to readers to determine whether that is a net win for the economy.

On the bright side for anyone affected by the coming round of job cuts, at least you know that this time around, the staff at Cameron Smith & Associates is “much more prepared” to handle the sudden influx of 1,000 distraught former WalMart employees.

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3 Responses to “Economics 101: Wal-Mart Hikes Minimum Wages, Prepares To Fire 1000”

  1. John Says:

    Surely these big bosses are not as stupid as they are made out to be,,,,if you are cutting jobs for a quick shareholders fix u are more stupid than I thought….soon their will be no one there to buy anything ….no jobs, no spend…. you stupid stupid big men…..and then u short sighted big men, like the dentist, Palmer, find ordinary people and your neighbours will come looking for u!!!!!

  2. Marilyn Gjerdrum Says:

    John addresses a couple of different issues. The first is the ongoing destruction of jobs. Three major oil companies laid off thousands of workers this last week while all raising production in defiance of the world oil glut. The reason has nothing to do with the growing unemployment rate (which government lies about), but a concerted effort of the big oil players and the Saudis to destroy the economies of Brazil, Russia, China, South Africa, Venezuela, Argentina…….

    The reason is far different than it appears. The true reason stems from the advent of the first electronic currency, the Sucre, by Hugo Chavez in Spring of 2010. It was set up for his tiny association, the South American Trade Alliance. For the first time, member nations could trade directly with each other using their own currencies without first converting to the dollar. The Sucre translated the value of each currency at the time of transaction, making the need for any world reserve currency obsolete. Until then, the dollar held the world economy by the balls.

    It was so small, it flew under US radar….I caught it because I am an economics geek……..Russia and China watched them carefully. Seeing their success. Russia and China established an identical system in November of 2010. China went on to recruit Turkey, India, much of the emerging African nations, including South Africa, Australia, Brazil, Argentina, Venezuela (of course) and much of South and Central America. They went on to gain Australia, and lastly, Canada.

    The main holdouts of the dollar are the Euro, Saudis and a few others……..much of the world has abandoned the dollar in favor of electronic currencies.

    From that alliance grew BRICS, Brazil, Russia, India, China and South Africa are the key members, but not the only ones. They have established a powerful eastern bloc of financial power, and they plan to loan money in Yuan, not dollars……

    The US is (as usual) trying to put the genie back into the bottle, and what you see happening is economic warfare waged at the east. Even more aggravating is the fact most of these eastern nations (not sure about China, they adopted too many western money games) are fiscally responsible, actually earning, with a debt to GDP far below 100%.

    The suddenly strong US dollar in South America is all part of the game….get them for abandoning the dollar…..But it won’t work. The US has lost the world respect when it did nothing to fix a thing after the crash of 2008-2009 that caused entire nations to go bankrupt. Not one thing was changed or fixed, and the world started looking to move away from the US. Hugo Chavez provided the avenue, and he is now dead, they can do nothing to him.

    Part of this is to drive down wages of US and Euro workers to make us more competitive with cheap foreign labor…..Keep cutting jobs, and people will be so desperate to keep employed that they will do anything to stay working, regardless of conditions.

    Walmart is every bit as evil and greedy as the oil companies, and can be relied upon to act in accordance with the other greedy guts. They don’t care about long term thinking, either, they just want more now…….

    I read that annual incomes of average American workers was $28,528 a decade ago. The average work week was 40 hours.
    Today, the average worker earn $28,852……The average work week today is 48 hours.
    Do the math, they are driving down wages, and the mass layoffs that occurred this past week only fuel more of the same. They don’t care about long term effects, they only care about the next 90 days……..John is speaking of long term effects, and greedy guts never think in the long term.

    As for that creepy dentist, Palmer, Zimbabwe is seeking to extradite him, and I smile at the thought of his spending a few years in one of their prisons. However, I think he is going to get nailed right here using the Lacey act of 1900…….They have imprisoned a number of poachers for all sorts of related crimes recently using that law. Killing Cecil the Lion, such a famous lion, ought to cost him both his houses and some locked down time with a big aggressive roommate who likes animals as much as we do, John……..

    I also think the native creep who lured Cecil out of the national park to his death ought to spend time in the Zimbabwe prisons……..
    Thats all I can say on that issue.

  3. James Says:

    Didn’t the owners of Walmart each make like 15 billion a few years ago? Guess that’s not enough. They want more every year. Perpetual growth is a myth people!!! If it costs them 1 billion then between the 3 of them they will only make 14,333,000.00 each. That’s border line being. Pauper! Christmas is going to be rough I. That household this year;(
    Imagine what their well to do neighbors are going to think about them making chump change now!;0

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