January 16, 2018
An Alternative Explanation for Walmart’s
Announced Employee Bonuses and Wage-Rate Increase
On January 11, Walmart
announced that it was raising its starting wage rate to $11 an hour, giving a
one-time bonus up to $1,000 to employees, expanding its parental/maternal leave
policy and providing employees adopting a child up to $5,000 per child in fees
associated with the adoption. In making these announcements, Doug McMillon,
Walmart president and CEO said: “We
are early in the stages of assessing the opportunities tax reform creates for
us to invest in our customers and associates … Tax reform gives us the
opportunity to be more competitive globally and to accelerate plans for the
U.S.” Mr. McMillon is suggesting that Walmart’s employee compensation increases
were motivated by the Tax Cuts and Jobs Act of 2017 (TCJA). I have an
alternative explanation for Walmart’s recent beneficence – a growing shortage
of qualified employees.
Walmart, along
with all other corporations, has a fiduciary responsibility to maximize the
return on equity for its stockholders. All else the same, TCJA increases
Walmart’s after-tax profits. By increasing employee compensation by some
portion of its reduced tax liability emanating from TCJA, Walmart would be
reducing its after-tax profits (revenues minus expenses) from what they
otherwise would have been. This would be breaking with its fiduciary
responsibility to Walmart stockholders.
My alternative
explanation for Walmart’s January 11 announcement of employee compensation
increases is that it was compelled to
raise compensation in order to retain and attract new qualified employees. And
the reason Walmart needs to raise compensation to retain and attract new
qualified employees is because there is now a shortage of qualified employees in the retail sector at the existing level of compensation. This can
be seen in the chart below. Plotted in the chart are observations of the number
of job openings in a given month as a percent of the number of employees hired
in that month in the retail sector. The data are from the Job Openings and
Labor Turnover Survey (JOLTS) published by the Bureau of Labor Statistics. The
series begins in December 2000 and runs through November 2017. In November
2017, job openings in the retail sector were 105.0% of the number of hires.
That is, there were 5 percentage points more job openings in the retail sector
than there were new hires. This is the highest percentage of openings-to-hires
in the history of the series.
The demand for
retail employees exceeds the supply of employees at current compensation
levels. When the demand for something exceeds its supply, the price of that
something goes up. I believe that Walmart’s January 11 announcement of an
increase in employment compensation was motivated by a need to retain and
attract new qualified employees, not
by the recently-passed cut in corporate tax rates.
Paul L. Kasriel
Founder, Econtrarian LLC
Senior Economic and Investment Advisor
1-920-818-0236
“For most of human
history, it made good adaptive sense to be fearful and emphasize the negative;
any mistake could be fatal”, Joost Swarte
∆ + 6 = A Good Life
Send any comments to me at econtrarian@gmail.com.
