Walmart workers should be happy but not as happy as shareholders

Walmart workers should be happy but not as happy as shareholders
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Walmart announced on Jan. 11 that it would raise the starting pay for all workers to $11 an hour, ostensibly because of the recently passed GOP tax bill.

The retail giant will save at least $2 billion from the corporate tax reduction, according to estimates, and so one could reasonably imagine that Walmart is largely passing along the savings to its 1.5 million U.S. associates.

Given the tax bonanza and the booming economy, can Walmart afford to do more? $11 an hour will be a significant raise for some employees. But full-time Walmart workers will still be making $19,448 a year (Walmart counts 34 hours as a full-time week).

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The organization OUR Walmart has been calling on Walmart to pay all of its employees a $15-an-hour wage and to provide access to full-time hours for all who want them, which translates into $26,520 a year, or about $2500 more than the poverty level for a family of four. (It’s worth noting that Target has committed to pay its workers $15 by the end of 2020.)

 

So, it’s worth determining what Walmart can actually afford before simply celebrating the raise to $11 an hour. According to Walmart’s press release, the cost of the company’s hourly wage increase is $300 million for the fiscal year that begins on Feb. 1. (Its one-time bonus will cost $400 million for the fiscal year ending Jan. 31, so we can leave it aside).

According to retail analyst Chuck Grom, if Walmart is using 15 percent ($300 million out of $2 billion) to raise workers’ wages, this means Walmart will likely use another 15 percent to lower prices, meaning they’ll spend 70 percent — $1.4 billion — to buy back shares of its own stock.  

What’s the point of conducting share buybacks? Companies conduct them to reward their shareholders. When a company buys back its own stock, there are fewer shares of stock left out in the market, and so each share is worth proportionately more.

Share buybacks function essentially as a legal way for companies to drive up the price of their stock and, perhaps most importantly, to reward top executives. For Walmart, Walton family members hold large chunks of shares. It’s a way to drive up stock prices without worrying about pesky issues like gaining market share, selling more products or customer satisfaction.   

Rather than conducting stock buybacks, Walmart could use its tax savings and raise the wages of its employees to $15 an hour, while still retaining a healthy chunk of change for stock buybacks.

It’s impossible to make a precise calculation without knowing the hourly wage paid to each portion of Walmart’s employees. But a back-of-the-envelope calculation helps show the potential.

Glassdoor estimates the average starting wage for Walmart employees at $9.74. If the wage hike to $11 would cost Walmart $300 million, that’s a cost of $238 for a dollar increase in wages.

What if instead, Walmart increased the starting wage to $15? If we use the same cost-per-dollar wage increase, that turns out to be $1.2 billion.

If we assume Walmart has $2 billion still to play with from the tax cut, that means employees would get 63 percent of the total tax cut — instead of the original 15 percent — still leaving 15 percent to price cuts ($300 million) and a healthy 22 percent for buybacks ($440 million).

Meanwhile, according to Walmart’s 10-K, the company spent $8.3 billion on share repurchases in 2017, up from $4.1 billion in 2016 and $1 billion in 2015. Perhaps it’s no coincidence that Walmart’s share price went up 40 percent last year.

It’s likely that they have another sizable buyback plan for this year, separate from the tax cut spoils. If we take the total that was spent on buybacks in 2017 and divide it by that same $238 million per dollar increase, it would hypothetically allow for a raise of $27.66 per person, bringing starting wages up to $37.40.

For a full-time Walmart worker, working 34 hours a week for a year, this equals a $66,123.20 annual salary.

Walmart’s shareholders and executives will likely continue to see rising share prices and benefits from the tax cut and a strong stock market.

So, while it’s worth celebrating millions of Walmart workers getting a raise, it’d be far more worth celebrating wages that would actually get Walmart workers over the poverty line. Walmart can afford it.

Lenore Palladino is the senior economist and policy counsel for the Roosevelt Institute, a progressive think tank.