Saturday, October 31, 2015

A Few Brief Remarks on Walmart

A few brief remarks on Walmart

We examine some of the effects of Walmart on a local economy, and the nation’s. There is about one store per 100,000 in the US, each with average revenues of about $110 Million.  The revenue of a small retail establishment is about $3 Million, so a Walmart displaces about 35 small retailers, generally locally owned businesses which previously helped provide much of the community leadership.  If we include the earnings of the owners, the payroll of the Walmart is less than that previously provided by the sum of the small retailers, so the employment situation is also worsened when a Walmart moves in. 

This calculation, of course, does not include the benefit of the increased consumer surplus provided by Walmart’s always lower prices.  However, if these benefits are limited to an increase in purchases of consumer goods and services, as we would expect since the consumer surplus is widely dispersed among Walmart customers, we would not expect this to improve the capital situation of the community. Indeed, the value existing capital in the community is severely reduced. Downtown commercial rents, for instance, would be severely depressed, as the value of the buildings themselves.

In compensation for this damage, Walmart paid taxes of  $7 Billion on $22 Billion profits, or 31.8%.  But: Public assistance for its employees cost the US government $6.2  Billion last year, so in effect Walmart paid $800 Million taxes on $15.8 Billion profits, or slightly under 5%.   If instead it had paid its employees the $6.2 Billion more, so they would not need to collect public assistance, it would still have to pay 31.8% on $15.8 Billion. To raise the salary of their employees $1, roughly, they would have to pay $2. The people at Walmart Headquarters are probably smart, so presumably they have made this calculation also, and given present government policy, optimized it.   Indeed, as the reference indicates, this is probably general behavior among retailers, and other low wage industries.  An interesting problem for economists. 

This calculation is for 2013:

Many of Walmart's employees did receive a raise last year, somewhere between $1 and $3 so the figures have changed a little.

But not a lot.

Fast food companies do pretty much the same thing:

So we're probably talking about a comparable manipulation of their tax bill. Nominally, they pay a lot more than they really do.  So they are all not quite the good citizens they appear to be.

Clearly, a minimum wage where taxpayers have to supplement  the worker's income for them to reach subsistence is inadequate.