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US: Wal-Mart Could Hike Pay and Keep Prices Low: Study

by Emily KaiserReuters
June 15th, 2006

Wal-Mart Stores Inc. (WMT.N) 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. (COST.O) posted a profit margin of about 2 percent in 2005. The study did not mention Target Corp. (TGT.N), 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. Global Insight could not immediately be reached for comment.

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."





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