It has become a well-known fact that Walmart costs the taxpayers substantial amounts through subsidies to their employees who are paid so little that they qualify for public assistance in the form of Medicaid and SNAP, with many more who also qualify for housing assistance. What is less well-known is that contrary to Walmart’s claim that they operate on razor-thin profit margins and would have to raise prices substantially if they paid their workers more, it actually costs them more to pay them so little.
Walmart has 2.2 million employees worldwide with 1.3 million hourlies, and in the U.S. alone they employ 1.2 million and the company has gross sales of $475 billion a year with a net profit of $17.2 billion. While they maintain that the cost of raising the wages and offering benefits to their employees would increase prices studies have shown that this is not necessarily true.
It seems like good business to maintain low wages but the hourly cost of an employee does not tell the whole story. Walmart has an extremely high turnover rate which can in the long run actually cost more than paying a wage that will instill loyalty and keep employees for the long-term, and there is evidence that better wages actually offers a company a competitive advantage.
The full cost of replacing an employee is between 1.5 and 2.5 percent of the employee’s yearly salary, when a company has a turnover rate of 44%, as Walmart does, this adds substantially to its labor costs. In short, the current policy of keeping wages low is actually counterproductive.
Costco and Sam’s Club have nearly identical business models, with the exception of employee compensation, yet Costco has a higher return on their labor costs even though they pay their employees, on average, 72% more and 82% of Costco employees have health benefits. Their profit per employee is $21,805 in the U.S., Sam’s Club by contrast has a return of $11,615 per employee.
There are other benefits to paying employees a living wage with benefits as shown in the comparison between the two businesses. Costco has less “shrinkage” or employee theft than Sam’s Club and they have an overall turnover rate of 17%, 6% after a year, so while it may cost more per employee to train a replacement, with a lower turnover rate it still costs less in total.
A study by Harvard Business School found that better wages not only led to higher employee morale and loyalty, therefore reducing turnover and increasing productivity, but it also leads to higher customer satisfaction. In other words, paying a living wage is just good business.
It is, of course up to Walmart to decide whether or not they are gong to start paying their employees a decent wage and whether they will provide them with health insurance.