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A $12 Minimum Wage in Retail?

A lefty organization tries to repeal supply and demand.

by
Tom Blumer

Bio

November 29, 2012 - 12:00 am

It is here that Ruetschlin’s most obvious slip shows. Instead of framing the increased costs of pervasive pay raises (some of which I believe she failed to consider, including payroll taxes, workers’ comp, and other wage-based costs) as a percentage of what retailers actually have available to absorb additional costs (i.e., before-tax profits or net cash flow, and certainly not sales), she goes into a completely irrelevant rant about how some of them are engaging in stock buybacks. It’s easy to see why she dissembles. A Deloitte LLP study (very large PDF) of retailers’ 2010 financial results revealed that eight of the world’s top ten retailers (the other two are privately held) achieved net profit margins of only 3.0 percent. That is their after-tax percentage; pre-tax, it’s at most 5 percent.

Thus, what Ruetschlin really wants is for retailers to do one of three things: voluntarily reduce their pre-tax profits by about 20 percent ($20.8 billion divided by roughly $108 billion in pretax profit), force these costs on to their customers, or extract an equivalent amount from their suppliers in the form of price breaks. And this is going to stimulate job growth?

No it won’t. Here are just a few of the more obvious effects, depending on whose ox gets gored.

If companies voluntarily take the hit and take no alternative actions, their share prices will plummet, as will their ability to pay dividends. They will be less able to raise capital for future expansion. This will affect not only the so-called “one percent” who own and preside over these firms. It will also strike at the rest of us who directly own shares in these companies or indirectly hold them through retirement plan and other mutual fund investments.

But of course, companies, at least those wishing to survive, will take alternative actions. Some will place more emphasis on their highly automated online efforts. Other will freeze or contract their brick-and-mortar store count. Still others will reduce the floor space at their existing stores. Oh, and one other thing: an entirely government-driven trend which is already underway will accelerate at warp speed. Employers will become even more determined to keep employees from meeting Obamacare’s new definition of “full-time employment,” holding as many of their current and new workers to 30 or fewer hours per week to avoid being fined for not covering them on their health insurance plans.

Companies which simply choose to pass on the increased costs to the public will become less competitive. They will lose customers, sales, and market share, and will be forced to shrink their store count and workforce. Some will go out of business.

If suppliers are the ones who get beaten down, their profits and their shareholders will suffer, along with employees who will surely be hurt by some combination of layoffs due to increased automation and compensation cuts.

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