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The Unseen Consequences of Wal-Mart’s Wage Hike (Video)

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Wal-Mart announced yesterday that it is going to raise its minimum wage to $9 an hour, which will affect a half-million employees. Many are praising the company and saying this will improve the lives of low-wage workers, while also providing a boost to the American economy. However, Peter Schiff isn’t so optimistic. He explained to Yahoo! Finance why Wal-Mart’s minimum wage increase isn’t necessarily a net positive for the economy.

The wage increase will cost Wal-Mart about $1 billion this year. Who knows if Wal-Mart will pass along the cost of higher wages to its customers by raising prices? More importantly, Wal-Mart will probably cut back on hiring, which means low-income Americans will have that much more difficulty finding a job.

Transcript of Peter’s interview:

Yahoo!: No one has been more vocal against forcing Wal-Mart to raise the minimum wage perhaps than Peter Schiff, President of Euro Pacific Capital… Peter, your take on this move by Wal-Mart?

Peter: Obviously, they’re not forced to do this. There’s no mandate. They’re making a decision to do it. Although the protesters may be impacting this decision. Ultimately, it’s going to cause Wal-Mart to cut back on hiring. If it has to pay higher wages, it might decide to just have fewer job opportunities. They may end up passing along some of that extra cost to their customers. It’s not going to all be about lower profits at Wal-Mart. It could also be about higher prices for Wal-Mart customers. Of course, many of those customers are low-income workers themselves. So they take a pay cut if the cost of shopping at Wal-Mart goes up.

Yahoo!: You’re pointing out some of the potential drawbacks, but can you give Wal-Mart a rare pat on the back for this?

Peter: If it has to do with higher worker productivity. But you’re talking about across-the-board wage increases, which I don’t know if that makes sense business-wise. When Wal-Mart has a job opening, they get inundated with applicants. This is going to make it even harder to get a job at Wal-Mart. If people were lining up for Wal-Mart jobs before, they’re obviously a lot more attractive now at higher wages. At least, I guess, our college grads have a place to go work now. If you have your Philosophy degree or your degree in Sociology, you can get a plum job at Wal-Mart.

Yahoo!: Your sarcasm is well noted, Peter, but how about this? Wal-Mart being the leader is going to force everybody else to do it. If you’re Target, if you’re Kohl’s, if you’re anybody else, you’re probably now going to have to raise your minimum wage, because you’re probably now not going to get the best candidates.

Peter: I don’t know that’s necessarily going to be the case. Certainly the quality of applicants are going to go up a little bit, if Wal-Mart is going to pay higher wages. Some of the people Wal-Mart doesn’t hire might end up getting hired by some of their competitors. A lot of it is going to be a function of what happens to price. Paying higher wages, if it forces higher prices, Wal-Mart could end up losing some of its customers. Because they’re going to end up going someplace where the wages are lower and the prices are lower. So you never know, it might backfire and Wal-Mart might have to end up cutting back on its staff. So they end up paying higher wages, but they pay them to fewer people. Again, more people will want those jobs, so pretty soon you might have to have a connection to get a job at Wal-Mart.

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