Walmart Bumps Minimum Pay Up to $11, Announces Layoffs and Closings

Retail Giant to Pass On Tax Savings to Workers

Walmart, the world’s largest retailer, announced in early January that, as a result of the savings it will reap from the recent tax law changes, recent tax law changes, company officials have decided to raise the entry level wage for the company’s workers to $11 per hour, up from $10 per hour. Company officials say the decision will cost about $300 million in 2018. Current minimum wage requirement under federal law is $7.25 an hour. The company also announced that it will offer one-time cash bonuses to certain employees, based on how long they’ve been with the company. The bonus could be as much as $1,000 and the company expects to pay out as much as $400 million in bonuses. Most experts believe that the tax law changes will save Walmart billions of dollars. It’s the first bonus paid to hourly workers in the history of the company.

Pay Increase to Benefit More than a Million Walmart Workers

The pay raise is expected to affect more than a million employees of Walmart, also the world’s largest private employer. The move by Walmart followed the lead of rival retail giant Target, which lifted its entry level wage to $11 an hour in September, 2017 and has promised to hike hourly wages to $15 an hour by the end of the decade. A number of other companies, including Boeing, AT&T and Wells Fargo, have also indicated that they will use some tax savings to pay higher wages to workers.

Proponents of the new tax law say this is exactly what they envisioned would happen when Congress cut the corporate tax rate nearly in half, reducing it from 35 to 21 percent. Industry analysts note that retailers like Walmart and Target stand to benefit the new reduced corporate tax rate, as they have historically had among the highest effective tax rates of all American companies, given that most of their operations are in the United States.

Walmart has acknowledged that it will reap financial benefit from the new tax law and says that, in addition to investing in its workforce, the company is considering other investments. Walmart has more than 1,500,000 employees in the United States and took home global revenue of nearly half a trillion dollars last year.

It appears, though, that new stores may not be one of the areas where Walmart will invest its tax savings. Just a few hours after announcing the pay increases, rumors started to appear on Facebook and Twitter, suggesting store closings and layoffs. The company then disclosed that it will also close about 10% of its Sam’s Club discount warehouses (63 stores in all). Officials say approximately 50 of the Sam’s Clubs warehouses will simply be closed down, but that a dozen or so will likely be converted to warehouses for online shopping. Industry analysts estimate that every Sam’s Club employs about 150 workers, so the closures will lead to as many as 10,000 layoffs, though company officials say that about 25% of the workers will be hired back to work in the online distribution centers.

Walmart Moves In New Direction under New Leadership

Most analysts who follow the retail industry believe that the closings are part of a new strategy, under new chief executive officer Doug McMillon. They point out that the rise of Amazon as a legitimate contender for the world’s largest retailer has forced the company to abandon founder Sam Walton’s belief that you picked good locations and made them work. Indeed, many see the closing of stores and the conversion to online shopping warehouses as clear evidence that Walmart is positioning itself against Amazon.

The Trump administration praised the decisions by Walmart, Target and other retailers, citing it as evidence of the predicted impact of the tax cuts. However, union officials and retail industry watchdogs have expressed concerns. A spokesperson for the United Food and Commercial Workers Union called the pay raise a “public relations stunt” to divert attention from the fact that Walmart was laying off thousands of workers and still paying current employees a wage below the federal minimum poverty level (currently at $24,600 for a family of four).

Staying Competitive in the Labor Market

There’s significant evidence, though, that Walmart’s decision to increase the minimum it pays its employees is about more than sharing the benefits of the tax law change. In fact, many economists view it as almost a necessity to be able to attract, recruit and retain the employees it needs to keep its operation humming along. With the current unemployment rate hovering around four percent, is the lowest it’s been since shortly after the Republicans took the White House in 2000, minimum wage workers have more options for gainful employment. As a result, companies that employ many lower wage earners (like Walmart and Target) need to offer more to draw the best talent. According to reports, more than half of Walmart’s hourly employees live and work in states with a minimum wage below $8 per hour. By offering a 40% premium over the prevailing minimum wage, the company hopes to attract the labor pool necessary to meet its needs.

In addition to the wage increases, Walmart has promised three additional perks to attract and keep hourly wage employees:

  • All full-time employees will now be eligible for up to 10 weeks of paid maternity leave
  • All employees who want to adopt a child can apply for a $5,000 stipend to help defray the costs of the adoption
  • Spouses of newborns can also take paid maternity leave, but it’s limited to six weeks

A company spokesperson said that open enrollment for 2018 company benefits has already been completed, so the new perks were not expected to be available until the end of 2018.

 

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