What if Walmart Hiked Prices and Wages?

What if Walmart Hiked Prices and Wages?

This new video from Slate explores the question:

Using some back-of-the-envelope math with data from various sources, the video claims that if Walmart raised its prices just 1.4 percent -- one cent on a 68-cent box of mac and cheese! -- it could pay all its employees enough ($13.63) that they wouldn't qualify for food stamps, without touching its bottom line. When all was said and done, Walmart customers would be out $4.8 billion a year, employees would be paid more, and taxpayers would save $300 million a year on food stamps.

Would this be a good outcome? We can't really say until we take a closer look at the three affected parties -- customers, workers, and taxpayers.

Last fall I pointed out an analysis from the University of California at Berkeley (whose work the video also cites) finding that, if Walmart hiked prices to fund a higher minimum wage for employees, "28.1 percent of the total price increase would be borne by consumers in families below 200 percent [of the federal poverty level]. In comparison, 41.4 percent of the benefits would go to Walmart workers in families below 200 percent FPL."

As a definition of "poor," 200 percent of poverty might be a little broad -- it describes about 40 percent of the population. (Walmart shoppers tend to be middle- and low-income, but richer shoppers spend more, so only 28 percent of its revenues come from these folks.) But let's put these numbers differently: Transferring $100 from Walmart customers to the lowest-paid Walmart employees is like taking $28 from some poor people and giving it to other poor people, taking $59 from some nonpoor people and giving it to other nonpoor people, and taking $13 from nonpoor people and giving it to poor people. Or, in the form of a crude illustration:

Further, we're not just transferring money from customers to employees, because taxpayers are taking a cut, too, in the form of slashing benefits for poor employees and collecting more taxes from richer ones. As I've also previously noted, a poor single mother with one kid -- like the mother who appears in the video -- can lose a big chunk of her gains as her income rises; Jeffrey Dorfman calculated last week that she'll lose about half of her raise if she goes from minimum wage to $10.10, and that more than a third of the damage is from programs other than food stamps.

Pairing Dorfman's numbers with Slate's own estimate for food stamps ($300 million out of $4.8 billion) allows us to do some rough math: If every dollar in food-stamp cuts is paired with 50 cents in other benefit cuts, 9 percent of the total transfer ($450 million) will go to taxpayers this way. And if the loss is concentrated among the 41 percent of employees Berkeley classifies as low-income, as it presumably is, our calculation above changes: Instead of taking $28 from poor customers and giving $41 to poor workers (in addition to transfers involving the nonpoor), we're taking $28 from poor customers and giving $32 to poor workers. Taxpayers save $9 (and collect some extra taxes from Walmart workers in richer households).

And let's not forget that taxpayers are a pretty rich bunch; if you cut $100 in federal taxes, and do so proportionately to the taxes that are paid, $71 will go to the top 10 percent, and only $2 will go to the entire bottom 50 percent. Or you can apply the savings to the deficit, but that just saves future groups of taxpayers, whose incomes will presumably be similarly skewed. Certainly, the typical tax dollar comes from a richer person than the typical Walmart dollar comes from.

Finally, if Walmart did this unilaterally (as opposed to the government forcing Walmart and all its competitors to do it), it would raise competitive concerns. The Berkeley study said Walmart could increase prices while maintaining an advantage over other retailers, but that might no longer be true.

So, Slate's scheme is a lot more complicated than it looks.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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