Wal-Mart could hike pay and keep prices low: study

By Emily Kaiser

CHICAGO (Reuters) – Wal-Mart Stores Inc. could
significantly increase employee wages and benefits without
raising prices, and still earn a healthy — albeit smaller —
profit, research released on Thursday concluded.

The Economic Policy Institute study comes as the world’s
biggest retailer faces a barrage of criticism from labor
unions, politicians and community activists, who say it pays
poverty-level wages and drives competitors out of business.

Wal-Mart, which has taken steps to improve its health care
and other benefits, argues that its low prices boost consumers’
buying power and increase their standard of living. The
retailer regularly cites a Global Insight study that found
Wal-Mart saves U.S. families more than $2,000 per year.

“The more important question for the future isn’t whether
Wal-Mart is a force for good or evil in the American economy,
but whether the economic benefits provided by Wal-Mart can be
preserved even if their labor compensation is dramatically
improved,” economists Jared Bernstein and Josh Bivens wrote.

They concluded that if Wal-Mart reduced its profit margin
to about 2.9 percent, where it stood in 1997, from the 3.6
percent margin it recorded last year, that would free up some
$2.3 billion to pay workers without raising prices. That works
out to just under $2,100 per non-managerial employee, the
researchers calculated.

They noted that rival Costco Wholesale Corp. posted a
profit margin of about 2 percent in 2005. The study did not
mention Target Corp., Wal-Mart’s biggest competitor in the
discount sector, which reported a 4.7 percent profit margin for
last year.

In a telephone interview, Bivens said his research was
aimed at refuting “outsized” claims that Wal-Mart saved
consumers hundreds of billions of dollars and that its margins
were so thin that it simply could not afford to pay employees
more without forcing low-income consumers to foot the bill.

“I always thought that they had really, really tight profit
margins,” he said. “They’re really a microcosm of the U.S.
economy. They are very, very good at generating income, but it
needs to be spread out more equitably.”

His research refuted many of the findings from the Global
Insight study released last year regarding how much money
Wal-Mart saved consumers.

Jim Dorsey, a spokesman for Global Insight, said the
research firm stood by the accuracy and methodology of its
study, which was independently reviewed.

“Our study produced estimates of Wal-Mart’s impact on
prices and consumer savings that make common sense and are
consistent with the findings of other rigorous, peer-reviewed
studies on the subject,” he said.

“In its criticism of Global Insight’s findings, the
Economic Policy Institute’s paper does not properly account for
the indirect impact of Wal-Mart on prices.”

Wal-Mart said that its stores were good for U.S. working
families, and noted that they created tens of thousands of jobs
last year, many of them in underserved neighborhoods.

The retailer also criticized the Economic Policy Institute
as “funded by big labor.”

“We will treat the findings of this study with the same
amount of skepticism as other statements made by labor leaders
who oppose us,” Wal-Mart spokesman Kevin Thornton said. “We are
proud of the economic impact we have on communities — from the
job opportunities we provide, to the money we save working
families, to the tax revenue we generate, to the contribution
we make to local charitable organizations,” he added.

Thornton said Wal-Mart’s average full-time wage is $10.11
per hour, and the retailer does market analysis to ensure its
wages are competitive. He noted that Wal-Mart offers 18
different health care plans that cost as little as $11 per
month in some areas.

Bivens and Bernstein concluded: “Wal-Mart does a lot right.
It has expanded productivity by being more efficient and leaner
than many other companies. Many of the benefits shoppers accrue
from Wal-Mart’s expansion could be preserved even if the
retailer had to meet the expectations of its critics regarding
fair worker compensation.”