Walmart Labor Rates, Minimum Wage, and COVID-19 Impact

Introduction: Labor Rates and the Retail Sector

Within the United States, labor and its corresponding rates have become both a divisive and contentious issue. COVID-19 has only exacerbated an already combative labor environment. The pandemic resulted in massive layoffs and furloughs for millions of Americans. The tourism, retail, entertainment, airline, and energy sectors all declined precipitously as consumer demand fell throughout the year. As consumer demand declined, corporations were forced to make the difficult decision to eliminate or cut their labor forces. Adding further pressure to prevailing labor rates were consumer-driven initiatives such as the "Fight for $15" movement. The unforeseen and rapid decline in consumer demand, combined with the growing popularity of raising the minimum wage, created unique variables as they relate to the labor rate. As retail was one of the hardest-hit industries, a study of Walmart is warranted given the sheer number of people it employs and its relentless focus on costs.

Walmart's Workforce and Labor Importance

The labor workforce is particularly important to both Walmart and the retail industry as a whole. During a normal economic year, the retail sector employs over 10 million people and generates sales of over $5.94 trillion. Walmart itself employs over 2 million people around the world in areas such as finance, marketing, sales, logistics, technology, and more. Due to the sheer number of employees the company hires, the overall labor workforce is critical to its economic success (Fishman, 2006).

Wage Increases and Competitive Strategy

As it relates to labor rates, Walmart has been at the forefront of pioneering new initiatives. The company was one of the first major retailers to raise its minimum wage for employees throughout the organization. This raise in wages ultimately had a material impact on the company's overall financial performance. Walmart's competitive advantage rests on its pricing strategy: the company works to lower costs throughout the organization in order to pass savings on to consumers. Consumers, particularly those who are not brand loyal, tend to be attracted to lower prices for everyday goods. Items such as clothing, certain groceries, home furnishings, and electronics compete heavily on price. Because Walmart consistently offers the lowest prices, consumers tend to be heavy users of its services.

Conclusion

The labor rate is a critical input in Walmart's overall success. The company is the third-largest employer in the world, with over 2 million employees. Political and societal pressures have caused the company to raise wages for a vast majority of its workers. As a low-cost producer, this directly affected corporate overhead through higher salary expenses, general and administrative costs, bonuses, retirement contributions, and severance pay.

The increase in labor costs and its corresponding impact on overhead is not unique to Walmart, however. Many of its competitors were forced to raise wages as well. The rise in labor rates contributed to the demise of many of America's most iconic retail brands as they grappled with changing consumer preferences, rising debt levels, and bloated cost structures. Ultimately, Walmart was able to offset its higher labor costs through increased product volume as consumers flocked to its stores in response to COVID-19. Even with elevated labor rates, the company has remained a success story throughout the world.

References

Barry, J. and Jancome, M. (2007). Ethical Standards and Working Conditions. Digitalcommons.ilr.cornell.edu. [Accessed 19 January 2021].

Fishman, Charles. The Wal-Mart Effect: How the World's Most Powerful Company Really Works — and How It's Transforming the American Economy. Penguin Group, 2006. 294p.