There is a great outcry for better pay in the US with many stores having to increase the wages as the governments are legalizing these rising wages. Due to this increased public pressure and increase in purchasing power of the population, it is expected that this trend continues.
Wal-Mart stock decreased Tuesday due to the rise in the wages in the US, but this is not about to extinguish the desire for better wages that is gaining momentum in North America as purposed by business leaders and experts.
Ontario Federation of Labor president Sid Ryan has put forward that Wal-Mart is playing delaying antics well after knowing that the minimum wage campaign had gotten its share of interest among the presidential and prime ministerial aspirants as well finding its way into the hearts of the population.
The demand for the minimum wage of $15 began in November 2012 when fast food workers boycotted the job demanding a rise from the original $8.75 they were earning, and this has spread among cities in US and Canada and retailers are left with no option but to fall on this line as the campaign gains ground.
The decision by Wal-Mart to increase the wage to $10 per hour, improve training and increase staffing levels will reduce profit levels by 24 cents a share as compared to the previous deficit of 20 cents per share since an extension of worker hours is expensive.
Shares dropped to $68.48 showing costs are exceeding the sales. The operating costs rose and, in turn, revenue growth capsized. The decline in earnings is blamed on operating costs. Raising the minimum wages should not create unemployment, in countries like Canada with low minimum wage there is room for escalation.
Rising wages improves the purchasing power of consumers benefiting retailers in the long run. Wal-Mart rides on its position in the supply chain although understaffing means slow replenishment of inventory. Companies that pay better are gearing towards increasing the consumer's monetary power and hence widen their profit margins.
Living Wage Policies and Wal-Mart
Wage increase in the metropolitan is prone to cause payments of less to the consumers and eventually is unlikely to offer the desired real benefits. Among those affected by the increase in wage bill includes the competitors in the market that respond by improving social services such as health services. Pricing of the goods also reduces but a significant difference is seen between Wal-Mart retailers and other retailers in the market.
An increase in the wage bill can lead to the transfer away from those families with low income while a decrease in wage bill leads to transfer to families with low income. However, the standardization of wage bill impacts both Wal-Mart workers and its consumers. The income levels are also analyzed by using the $10 per hour as minimum wage analysis.
The impacts of the groups are mainly on the workers and consumers. The high minimum wage bill among the retailers who are mainly in the category of poverty. The workers profiling is done by basing on several factors such as gender, the level of wage, industrial work and even the status of time of work. The $10 minimum increase the payroll of the workers by significant amounts of 46.3%. This resultant increase goes directly to the family incomes. The companies respond by hiring more of skilled workers.
Consumers are also affected by 10$ per hour minimum wage. The higher prices is a result of the adoption of this increase in wage. The average sale per customer is a parameter that is used in estimation. The average sale per customer is also obtained. The low-income shoppers in the Wal-Mart is used in the calculation of the proportion of sales. The price increase amounts to total monthly increase $7.33 which is substantial amounts.
In conclusion, the analysis indicates that a 10$ minimum wage is a tool that is effective in aiding low- income families. The income gain accrues to the workers with a wage bill that is below 200 percent per year. However, the unlikely scenario of 100 percent wage increase through the price increase to the consumers impacts the shoppers with incomes below 200 percent per year greatly. The higher labor wage markets receive insignificant impacts for both the consumers and workers.
The Wal-Mart Effect: Wave Destruction or Creative Destruction
Lately, multi-store retailers have experienced significant growth though Wal-Mart has had a negative view on his locally owned retails. The study shows that it existed for types of independent retailers entries and exit in1980 in Florida also the Wal-Mart effects is encouraged by entry suppression rate but not by the increase in exit rate. Our findings may help public officials and retailers make a wise decision about economic development. There are many explanations that are attributed to this growth; purchasing power, investments, distribution and inventory, advertisements and high demand, flexibility and combination of retailing and wholesaling in the same shop infrastructure and subsidies. Wal-Mart greatest effect is that it offers lower prices to consumers.
Although Wal-Mart has drawbacks; econometric methods have not been successfully used to assess the effect, the study is only concerned with retails that only compete with Wal-Mart, and large retails chains have been included in the study which aims at distinguishing aspects affecting economy. Entry of Wal-Mart as a process of creative destruction. This process benefits the consumers and is disadvantageous to falling firms which create opportunities to coming retailers, and these dynamics are difficult to identify.
Wal-Mart shrinks competitors through structural equilibrium model this agree with Schumpeter's creative destruction process. Failure of small business attracted "brave" ones. Apart from Wal-Mart effect, other factors affect the entry and exit of retailers in the market which includes; local population and resource level, local and adjacent business activity and turnover and endogeneity.
The opening of Wal-Mart stores have effects on collocated and adjacent retailers. When it opens in the zip code the entry of retailer's declines initially and increase over time while in adjacent code, the retailer's entry codes increase overtime for competitors whereas the non-competitors remained unaffected.
Jacobs, Ken. “Living Wage Policies and Wal-Mart.” (2008).
Kopun, Francine. “Wal-Mart stock drops 3% after wage hike: Decline in earnings represent less than 1 per cent of the company's total operating expenses last year.” (2015). Toronto Star.
Paruchuri, S., Baum, A.C. & Potere, D. The Wal-Mart Effect: Wave of Destruction or Creative Destruction?” (2009).