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What Would Happen If Wal-Mart Gave Everyone $1 Per Hour More?

Photo Credit: USA Today

Let us take a moment today and do some math. It will be math that will anger and drive liberals insane, and it works on the principle of Economies of Scale, a fundamental premise of Microeconomics, and it will show just how out of touch with reality these liberal views are.


First the Data:

Wal-Mart US Employee Count: 1,600,000 approximate

Average Per Hour Wage: $15.20

Average Cost Annually Per Employee: $31,618.00

Total Employee Cost Per Operating Hour: $24,320,000.00

Total Annual Employee Cost: $50.59 Billion (per hour cost x 2080 work hours per year)

Ok, now that we have the data, let us look at the what ifs.

Wal-Mart's annual profit for fiscal 2023 was $147.6 Billion. They have just about 2.7 Billion shares outstanding for a total profit per share of $54.67. Now, this is not to be confused with valuation of the stock, but rather it is to show what each stock's share of the profit is. This is important when considering the long term health of an investment.

So what would happen to our numbers if Wal-Mart gave every single employee a $1.00 per hour raise?

Well, it would cost Wal-Mart an additional $1.6 Million per operating hour, and when you multiply that by 2,080 (the total number of working hours in a year) you get $3.33 Billion per year.

This means that Wal-Mart would have a new profit projection of $143.6 Billion to start from, or only $53.19 profit per share. Devastating? No, but it might change the outlook for a number of investors who invest on this strategy point.

Now, there is far more to this than just some simple math. Increased payroll means increased payroll taxes, FICA, Medicare, and many other things, but I am trying to keep this simple so that it can be followed, and getting too lost in the weeds, while more accurate, would only discourage people from continuing to read this.

Now, approximately 340,000 of Wal-Mart's workers make the $14.00 per hour minimum wage, so this is a realistic scenario if we get the $15.00 per hour minimum wage that many on the left were calling for. Yet how would this work if they got their new target, which is $20.00 per hour?

If Wal-Mart were to give every one of these workers and the rest that make less than $20.00 per hour, then about 40-50% of their workforce would get a raise in order to meet the minimum. Half of 1.6 Million is 800,000. Let's aggregate the raise out to $3.75 per person across that spectrum.

The math then looks like this: (800,000 * $3.75) * 2,080 = $6.24 Billion.

This means that Wal-Mart would project a drop in profit from $147.6 Billion to $141.16 Billion which reduces the price per share to $52.28. Such a move would shake investor confidence and cause a lot of them to sell.

That is where the cycle starts. When some investors pull out, then others begin to pull out. So, eventually Wal-Mart has to do a buy back of its stock to keep the price up to prevent a sell-off. Yet can they thread the needle of buying back enough to float the price while also not diminishing profit again which would lead to more selling? For a description of this problem, please see the paragraph labeled **.

Let us, however, assume that they can do that. Now they have another problem on their hands.

All of the people who got a $6.00 per hour raise are happy as clams, but those who only got a $2.00 per hour raise, or those who got a $1.00 per hour raise because they were earning more are now upset because they are now making the company minimum which they weren't before. So what you will see is a continued upward pressure on salary which will reduce profit further and possibly lead to the same above scenario.

This means that Wal-Mart will be forced to do what they, likely, would have done right at the start of this article (see I was trying to be nice to the liberal view) and raise their prices to cover the extra expenses thereby effectively nullifying the raise that they were forced to give their employees.

** Here is the reality. When you lose profits, investors flee. When investors flee, you eventually have to sell assets. Selling assets only gets you so far, so eventually you have to sell bigger assets and close stores. This puts many workers, who were making more, out of their jobs and drives down profits which starts the cycle again from the top.

Because the one thing that a business must protect at all costs in order to keep its investors and thereby keep its doors open is its profit.

It really is as simple as that.

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