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Economics 101 Strikes Again As Wal-Mart Wage Hikes Prompt Breadwinner Layoffs At Headquarters

In late July we suggested that Wal-Mart may be ready to fire as many as 1,000 employees at its home office in Bentonville. Our suspicions arose from an internal memo circulated at local staffing firm Cameron Smith & Associates. Here’s what it said:

"Please remember, these people are our neighbors and friends. You have a skill that will be very much in need when this goes down. You are experts in the job market and you know what it takes to get hired. This is a time for us to step up and do what we can to help."

This, as we pointed out at the time, is economics 101. When your business lives and dies by the idea of “everyday low prices” - indeed, when low prices become something of a religion, passing on rising labor costs to consumers simply isn’t an option and when Wal-Mart committed earlier this year to spend around $1 billion to boost the wages of its lowest paid employees it was only a matter of time before the job cuts started rolling in. 

Of course Wal-Mart tried to avoid this by squeezing the supply chain, first with requests that suppliers cut back on marketing, then with the imposition of storage fees, and finally with demands that suppliers pass along savings from the yuan devaluation to Wal-Mart corporate. But you can only extract so much by extorting your suppliers and as unlikely as it might be, the company didn’t want to end up tarnishing its record as master of supply chain management by inadvertently starting a supplier mutiny. 

And so, in a desperate attempt to preserve its razor thin margins, Wal-Mart moved to cut hours and because the optics around first raising the minimum wage and then firing a bunch of minimum wage workers would be so poor, the logical next step is to cut jobs higher up in the food chain, which explained the Cameron Smith & Associates memo. 

Sure enough, two months later, the home office job cuts are official. Here’s WSJ:

Wal-Mart Stores Inc. is preparing a round of layoffs as early as Friday that would affect hundreds of employees at its Bentonville, Ark., headquarters, according to people familiar with the situation.

 

Human resources employees have reserved many of the meeting rooms at the headquarters on Friday

as well as small rooms typically used by suppliers to pitch products to the retail giant, according to a person familiar with the matter.

 

Some Wal-Mart department directors were told to cancel travel this week or make sure they come to the office on Friday, said another person who spoke with the Wal-Mart employees.

 

Fewer than 500 workers are expected to lose their jobs. About 18,600 people work for Wal-Mart in the Bentonville region. Wal-Mart declined to comment.

And in an irony of ironies, the suddenly jobless Bentonville employees will now turn to the supply chain for work:

Any layoffs would also ripple through the large consumer-goods companies that have offices in the region to work closely with Wal-Mart, often their largest source of revenue. Suppliers frequently build their teams to mirror counterparts at Wal-Mart, and many will likely be inundated with resumes from former Wal-Mart employees, suppliers and consultants said.

But these job seekers will likely be out of luck, because as noted above, and as detailed in these pages on countless occasions, suppliers are, if anything, likely to be firing not hiring because Wal-Mart is squeezing them for every last penny of savings. 

We close with what we said when we first reported that the retail behemoth may be considering cuts in Bentonville (the first excerpts are from the Arkansas Democrat-Gazette):

Cutting through red tape and trimming bureaucracy has been among the goals of McMillon, who took over as CEO in February 2014. 

 

"As we've grown and time has gone on, we've created pockets of our business, situations where people don't want to share bad news. Lots of PowerPoints get built, lots of pre-meetings are held to socialize things so people aren't surprised during a meeting," McMillon said. "That is bureaucracy. That slows us down."

 

Got it. Too many people are working on PowerPoints and when someone making $10 an hour calls the home office, the hold time is too long. These are clear signs of an elephantine, Washington-esque bureaucracy, which must be done away with.

 

Or something.

 

Just don’t dare suggest that the cuts are the indirect or even direct result of the wage hikes that will cost the retailer around $1 billion this year, because that would mean that critics of the push to hike the pay floor are correct to assert that forcing employers to pay more will immediately result in equal and offsetting layoffs.

 

Only here they aren't necessarily "equal" at all.

 

That's in no way a commentary on the "worth" (in a philosophical sense of the word) of an hourly worker versus a salaried employee, but if layoffs in Arkansas do materialize as Cameron Smith predicts, it seems entirely fair to suggest that the pittance given to hundreds of thousands of low paid workers will ultimately come at the cost of 1,000 or so breadwinner positions.

 

We'll leave it to readers to determine whether that is a net win for the economy.