Study shows Wal-Mart could hike pay and keep prices low

CHICAGO - Wal-Mart Stores could significantly increase employee wages and benefits without raising prices, and still earn a healthy -- albeit smaller -- profit, research released today concluded.

The Economic Policy Institute study comes as the world's biggest retailer faces a barrage of criticism from labour 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 US families more than US$2000 ($3270.11) 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 per cent, where it stood in 1997, from the 3.6 per cent margin it recorded last year, that would free up some US$2.3 billion to pay workers without raising prices. That works out to just under US$2100 per non-managerial employee, the researchers calculated.

They noted that rival Costco Wholesale Corp posted a profit margin of about 2 per cent in 2005. The study did not mention Target Corp., Wal-Mart's biggest competitor in the discount sector, which reported a 4.7 per cent 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 US 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.

Jim Dorsey, a spokesman for Global Insight, said the research firm stood by the accuracy and methodology of its study, which was independently reviewed.

"Our study produced estimates of Wal-Mart's impact on prices and consumer savings that make common sense and are consistent with the findings of other rigorous, peer-reviewed studies on the subject," he said.

"In its criticism of Global Insight's findings, the Economic Policy Institute's paper does not properly account for the indirect impact of Wal-Mart on prices." Wal-Mart said that its stores were good for US 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 labour." "We will treat the findings of this study with the same amount of skepticism as other statements made by labour 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 organisations," he added.

Thornton said Wal-Mart's average full-time wage is US$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 US$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."

- REUTERS