Study: Wal-Mart Can Hike Wages, Enjoy Profits

June 16, 2006 ( - A new report from a Washington-based think tank asserts that giant retailer Wal-Mart can afford to increase wages and still enjoy a "healthy" profit.

A news release from the Economic Policy Institute (EPI) said that its study found that Wal-Mart could raise wages and benefits for its non-supervisory staff by 13% and still boast a profit margin almost 50% greater than warehouse retailer Costco.

The report also asserts that Wal-Mart could provide workers sizable increases in wages and compensation without affecting its retail prices if the store accepted the same profit margins as some of its competitors. For instance, Costco had a net profit margin of 2% in 2005. Returning to its 1997 net profit margins would allow Wal-Mart to give its non-supervisory workers 13% pay hikes without raising prices while still maintaining higher profit margins than a main competitor, the researchers argued.

The Institute’s paper also attacked a widely cited study that claimsUS consumers have saved $263 billion because of Wal-Mart’s expansion – the bottom line of a report prepared for Wal-Mart by consultant Global Insight.

Institute researchers said the Wal-Mart consultant based its findings on the Consumer Price Index (CPI) – which measures the costs of a basket of goods and services. But EPI claimed that 60% of the items in the CPI basket are services such as health care, housing and transportation – which consumers ca not buy at Wal-Mart – and that these items are likely to make up an ever-expanding portion of household expenditures in coming years.

“Working families need higher wages to keep up with the rising prices of gas and housing,” said the study’s co-author Josh Bivens, in the news release. “Rent or mortgage, utilities, medical services and transportation – these are what take up the largest portion of a family’s income – not goods bought at Wal-Mart.”

The think tank also argued that Wal-Mart’s labor policies hurt low-income families. As Wal-Mart expands, its pay scales affect each new market with what the researchers claim is “substantial downward pressure” on wages. Wal-Mart store openings lead to a 0.5% – 0.8% reduction in average earnings per worker in the general merchandising sector and pay lowered by 0.8% – 0.9% for grocery workers, EPI said.

The EPI study by economists Jared Bernstein and Bivens judged the competing claims about Wal-Mart’s impact on prices and wages in The Wal-Mart Debate: A False Choice Between Prices and Wages. A technical paper, Wrestling with Wal-Mart: Tradeoffs between profits, prices, and wages, is available here .

Wal-Mart has also come under attack in recent months for its health care coverage, with critics claiming that its employees are effectively “dumped” on public programs for the uninsured or underinsured (See Doyle Accuses Wal-Mart of Health Care ‘Dumping’ ). A number of states debated their responses to that issue (See Garden State Joins Chorus of State Health Mandate Proposals ). Company officials later announced they were improving employees’ health offerings (See Wal-Mart Broadens Health Benefits, To Trim Down Drug Co-Pay ).