Wal-Mart received the accolades that have long kept their distance from the company when it announced that it would be increasing its employeesâ€™ wages. Bully! The advocates of the $15 minimum wage were thrilled. If Wal-Mart can do it, anyone can!
What the advocates, customers, and employees missed was the power of economic equilibrium that must be satisfied. Wal-Mart simply cannot maintain its low-cost model with a new wage structure. Those who follow business closely saw it coming and â€œitâ€ took effect about one week after the wage largesse. Wal-Mart is squeezing its suppliers. Those who want to sell their wares at Wal-Mart must cut their prices. The suppliers are taking out the marketing, and Wal-Mart is taking out the slotting fees. Paul Ziobro and Serena Ng, â€œWal-Mart Ratchets Up Price Pressure on Suppliers,â€ Wall Street Journal, May 1, 2015, p. A.
Those suppliers who push back find that Wal-Mart negotiates with other vendors for lower prices. Henkel AG will not compete with its Persil detergent right next to Procter & Gambleâ€™s Tide because P & G did not want to lower its price.
Now take the impact back into the chain. When suppliers have to reduce their costs, they have to reduce their costs. The sizes of their workforces could decline and it is clear that none of the suppliers will be increasing their employee wages.
Social responsibility is a tricky business. Ultimately, someone pays for voluntary choices corporations make. When benefits are conferred, benefits are taken away elsewhere.