Tuesday, April 21, 2015

Why higher minimum wage is bad for Wal-Mart

Wal-Mart has announced that it will raise its lowest wages to $9 in April and $10 by February 2016, well above the national minimum wage or $7.25. The move has been widely hailed as a salve for the poorest working Americans, and a potential benefit to the American economy insofar as it will pressure other companies to raise wages and therefore spur consumer spending.

But Peter Schiff, the CEO Euro Pacific Capital, says the move has a darker side.

“Ultimately, it’s going to cause Wal-Mart to cut back on hiring,” he said. “I mean, if it has to pay higher wages, it may decide just to have fewer job opportunities.”

“When Wal-Mart has a job opening, they get inundated with applicants,” Schiff added. “I mean, this is going to make it even harder to get a job at Wal-Mart. Because if people were lining up for Wal-Mart jobs before, they’re obviously a lot more attractive now at these higher wages.”

But that’s not the only potential harm to lower-income Americans that could come from this move, according to Schiff, who has long defended Wal-Mart against pressure for the world’s largest retailer to raise its minimum wage.

“They may end up passing on some of that extra cost to their customers,” he said. “It’s not all going to be about lower profits at Wal-Mart. It also could be about higher prices for Wal-Mart customers. And of course, many of those customers are low-income workers themselves.”

Finally, Schiff notes a third potential negative ramification.

“By paying higher wages – if it forces higher prices – Wal-Mart could end up losing some of its customers, because they’re going to end up going somewhere where the wages are lower and the prices are lower. So it might backfire, and Wal-Mart might end up having to cut back on its staff.”

“They might pay higher wages, but they may pay them to fewer people,” he added. “And it will be harder to get a job. So pretty soon, you might have to have a connection to get a job at Wal-Mart.”

- Source, Yahoo Finance

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