Well, that was quick. Here comes the crony capitalist again! Or, is he a useful idiot? A mere two weeks after Amazon’s self-imposed $15/hour minimum wage took effect, Bernie Sanders co-sponsored a bill which, along with new rules on executive pay and stock buybacks, would force the same $15/hour standard on all companies with over 500 employees. The marquee target is in fact Walmart, on which the bill’s torturous acronym is based: Stop Welfare for Any Large Monopoly Amassing Revenue from Taxpayers (Stop WALMART).
As reported by The Washington Post, the cost impact to Walmart would be $3.8 billion, according to Ken Jacobs, chair of the University of California at Berkeley Labor Center. Mr. Jacobs characterized $3.8 billion as “a tiny, tiny fraction of their revenues.” He is mathematically correct. Walmart’s 2017 revenue was about $500 billion. But he is highlighting the wrong metric. The $3.8 billion cost increase comes with no associated revenue increase, and so every nickel of that would cut into profits. Walmart’s margins are quite thin – with only four cents of profit squeezed from every dollar of revenue. In 2017, this came to $20 billion, meaning that a $3.8 billion cost increase would wipe out nearly one-fifth of Walmart’s profits.
This probably still sounds like dismissible stakes to someone like Ken Jacobs. But that is $3.8 billion, which Walmart cannot invest in hiring more people, improving existing store conditions, building new stores, lowering merchandise prices for consumers, or any other tactic which would further enable them to best serve customers and…more effectively compete against other retailers.
Which brings us back to the October 28 BOL post. Any across-the-board increase in wages will be more costly to Walmart than to Amazon. Amazon’s decision to raise minimum-wage voluntarily to $15 an hour looks very shrewd exactly because it appears to have emboldened Sanders to propose this bill. With a Republican Senate, Stop WALMART is unlikely to become law in the short term, and the 77 year old Sanders knows this. But introducing the bill now is a short term maneuver in a longer term game. It keeps the minimum wage conversation alive even if nothing can happen in Washington for the moment.
Walmart must now be distracted with defending against the legislation or preparing for the eventual 3.8 billion cost increase. And that is just Walmart. Dozens of other Amazon competitors face the same dilemma. It’s good to be Amazon. They can keep focusing on their core business while this power-to-the-people, 1930s style Vermont socialist threatens to inflict more damage on their competitors than any Prime Day sale ever could.