Why a Minimum-Wage Hike Would Help Wal-Mart

September 6, 2013 | | MSN Money |

Paying workers more would lead to lower profits and layoffs for America's biggest corporations, right? Not necessarily. 

Critics of a minimum wage hike cite a commonly held belief that forcing low-paying employers such as Wal-Mart to boost compensation would lead to greater economic suffering. Higher labor costs, they argue, would require higher prices, prompting layoffs and more pain.

But research from the public policy firm Demos finds that raising the minimum wage could potentially strengthen the financial standing of Wal-Mart, McDonald's and other companies that attract low-income customers.

It's a "misconception is that raising the minimum wage will lead to another person's loss," Catherine Ruetschlin, a policy analyst at Demos, told MSN moneyNOW. Low-wage earners "are the people most likely to spend 100% of their paycheck. Raising the minimum wage, especially in periods of weak consumer demand like now, is actually a stimulus." [...]

Given that many Wal-Mart customers are just barely getting by, it's no surprise that the company in August cut its annual profit forecast. Analysts pointed to the struggling low-income consumer as the reason. 

But wouldn't a minimum-wage hike boost payroll costs, leading to higher prices at the checkout counter? 

Not so much. The actual impact on payroll would translate to only 1% of the $2.17 trillion in annual sales from large retailers, Demos found. If the entire impact of a minimum wage hike were passed on to shoppers, they'd pay just 1% more for the same goods, according to the study. 

Read the report: Retail's Hidden Potential: How Raising Wages Would Benefit Workers, the Industry and the Overall Economy