The Cost of Paying Wal-Mart Employees a Living Wage

Wal-Mart’s low wages apparently cost the US government $300,000,000 a year, and forcing them to raise wages would result in a 1% price increase across the board. Let’s assume those numbers weren’t much different in 2012.

US personal consumption expenditures in 2012 were $9,603.3 bn. The US population was somewhere between 312 and 315 million that year (use the “select a date” feature). Let’s say it was 313.5 million. So per capita consumption expenditures were $30,642.

Net US sales in 2011 were $264,000,000,000, so the actual per capita US spending at Wal-mart was more like $842. Under a 1% price increase, with completely inelastic demand and completely elastic supply, consumers would have spent $8.42 more a year. That sounds like almost nothing, and it might be small enough to justify assuming inelastic demand. But 1% of $264 billion is $2.64 billion and that’s still an order of magnitude more than we’d save.

Sort of. The government spends $300 million less and consumers pay $2.64 billion more, or $8.42 per person. There are about 115.2 million households in the US, so it comes out to about $23 per year per household. If the $300 m windfall is distributed evenly across households, the cost drops to about $20.50 a year. That number is probably small enough that the analysis doesn’t change much with elastic demand, even if goods sold at Wal-Mart are always inferior goods (in the economic sense).

So, is it worth it to force Wal-Mart to pay employees a higher wage? That depends on whether it’s worth $20.50 out of every household’s annual income. The lesson here is that big numbers are scary, small numbers sound trivial, even when they’re saying the same thing, and $20 always sounds like a lot of money.

Personally, I’d rather see that money come directly out of Wal-Mart’s $119.95 bn 2012 profit. I have no idea how to make that happen.


Update — an exchange from Facebook:

Friend 1: “Spending $2B to save $300M? Good deal. Haha.”

ssdecontrol: “That’s what I said too. But there’s a reason I went through the whole analysis.”

Friend 2: “But it was on Upworthy, so you must hate poor people if you don’t agree with what the article said.”

ssdecontrol: “Well maybe my point wasn’t clear… Would you pay $20 a year to give several thousand people a big raise? That’s a much bigger impact than you’d get from donating $20 to a food bank.”

Friend 1: “But that’s only is EVERYONE does it. If the food bank had an extra $2B…”


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One response to “The Cost of Paying Wal-Mart Employees a Living Wage

  1. Pingback: A glaring omission | Lots of Bad Ideas

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