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Retail Wage Increases Would Benefit Entire Economy and Additional Retail Sales, With Negligible Price Increase

Walmart executives worried about the recent spate of labor activity against the retailer would probably tell you that they cannot possibly offer higher wages to their employees while maintaining their brand identifier of low prices. They offer what the market will bear in terms of wages, they would say, and anything more would represent a loss for their business, and would impact shoppers on tight budgets. It’s just not possible.

The progressive policy organization Demos begs to differ. They released a report today on Walmart, but also the overall retail sector, one of the fastest-growing in the United States, with over 15 million workers. The report stipulates that retail sales employees make on average around $21,500 a year. According to Demos, a bump in salary to $25,000 a year, roughly a full-time employee making $12.50 an hour, would benefit over 5 million workers in the sector with an average 27% wage increase. The increase would lift over 750,000 employees out of poverty, and would significantly aid another 750,000 families right at the poverty line.

Would the retailers be able to afford this? Yes! The main impact of increasing these salaries and hours would be growth in the economy. With added funds going directly to those who need it, low-wage workers, the economy would add over 100,000 new jobs. The wage increase would be pushed back into the economy by being spent, and it would largely be spent at these retail operations. This is from the report:

A wage standard at large retailers equivalent to $25,000 per year for full-time, year-round workers would increase GDP between $11.8 and $15.2 billion over the next year.

As a result of the economic growth from a wage increase, employers would create 100,000 to 132,000 additional jobs.

Effects on Retail Sales: Increased purchasing power of low-wage workers would generate $4 to $5 billion in additional annual sales for the sector. Much of the increased consumer spending by low-wage workers after the raise will return to the very firms that offered the raise. The average American household allocates 20 percent of their total expenditures toward retail goods, but for low-income households that proportion is higher. A raise for workers at large stores would bring billions of dollars in added retail spending back to the sector. Our study finds that:

Assuming that workers do not save money out of their wage income, the additional retail spending by employees and their families generated by the higher wage would result in $4 to $5 billion in additional sales across the retail sector in the year following the wage increase.

So retailers would effectively spend money to make money. The boost in incomes at the low end would return to the retailers in the form of more sales. It wouldn’t totally return to them, but retailers enjoy record profits right now, and benefit from their workers accessing state and federal benefits to supplement their income. The retailers are essentially wards of the state, pushing their labor costs onto the public at large. If they were to offer a living wage, this unjust and unnecessary use of the taxpayer to supplement wages would end, and the retailers would not suffer unduly; in fact, they would show higher sales as a result.

But what about the effects on prices? Wouldn’t retailers just pass the costs of wage hikes onto the consumers, resulting in added strain? Demos estimates:

The potential cost to consumers would be just cents more per shopping trip on average. If retail firms were to pass the entire cost on to consumers instead of paying for it by redirecting unproductive profits, shoppers would see prices increase by only 1 percent. But productivity gains and new consumer spending associated with the raise make it unlikely that stores will need to generate 100 percent of the cost. More plausibly, prices will increase by less than the total amount of the wage bill, spreading smaller costs across the entire population of consumers. The impact of rising prices on household budgets will be negligible, while the economic benefits of higher wages for low paid retail workers will be significant. Our study finds that:

If retailers pass half of the costs of a wage raise onto their customers, the average household would pay just 15 cents more per shopping trip—or $17.73 per year.

If firms pass on 25 percent of the wage costs onto their customers, shoppers would spend just 7 cents more per shopping trip, or $8.87 per year.

Higher income households, who spend more, would absorb a larger share of the cost. Per shopping trip, high income households would spend 18 cents more, for a total of $36.80 per year. Low-income households would spend just 12 additional cents on their shopping list, or $24.87 per year.

I would personally rather pay 15 cents more per shopping trip rather than pay the costs of a working individual who nevertheless has to go onto Medicaid or collect food stamps. What’s more, as a result of the economic boost from higher wages, I would probably make more money myself, so this would all come out in the wash. Prosperity for retail workers would really mean more prosperity for all.

The whole report is here.

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David Dayen

David Dayen