Killing the Working Class at Wal-Mart

NOTE: The article below is a commentary (opinion) that we post as a follow-up to last Monday’s Daily News Article  “Walmart closures a “double blow” for many frustrated residents”

(by Andy Puzder, The Wall Street Journal: Mr. Puzder is the CEO of CKE Restaurants, which own Hardee’s and Carl’s Jr.) – The evidence continues to roll in: Broad increases in the minimum wage destroy jobs and hurt the working-class Americans that they are supposed to help. The latest evidence is an announcement that Wal-Mart, America’s largest employer, will close more than 150 U.S. stores, a move that will affect 10,000 employees.

Fifteen years ago when our management team took over the financially distressed Hardee’s brand, we closed more than 400 underperforming restaurants. We made these decisions by asking this question: Given this store’s financial performance, will the company be more sound with it closed? Shutting down these unprofitable locations helped us nurse the company back to health—and create more permanent jobs.

Similarly, “financial performance” was the first factor Wal-Mart noted in its closure announcement. Having to pay increased wages obviously diminishes a business’s financial performance. Wal-Mart voluntarily raised its base wage to $9 an hour last April, then announced in November that this resulted in a 10% reduction in earnings per share for the third quarter. This year Wal-Mart will raise its base wage to $10 an hour and is forecasting as much as a 12% decline in earnings per share.

Every retailer has locations that are profitable, but only marginally. Increased labor costs can push these stores over the line and into the loss column. When that happens, companies that want to stay competitive will close them. That’s one of the reasons that substantially increasing the minimum wage poses real risks for working-class Americans.

This reality apparently came as a surprise to “Making Change at Wal-Mart,” a union-backed group that has heckled the retailer to raise its entry-level wage. After the closure announcement, the outfit warned in a news release that this “could very well be just the beginning” and that it sends “a chilling message to the company’s hardworking employees that they could be next.” Yet many of the job losses are the direct result, to borrow the outfit’s branding, of making change at Wal-Mart.

Let’s look at Oakland, Calif., where the minimum wage is $12.55. When Wal-Mart opened there in 2005, about 11,000 people applied for the 400 positions. Those jobs will soon be gone, as the Oakland store is on the closure list. While Wal-Mart declined to address the details of its decision, City Councilman Larry Reid told the San Francisco Chronicle that Oakland’s minimum wage “was one of the factors they considered in closing the store.”

Councilman Noel Gallo, who supported efforts to submit the minimum-wage increase to voters, bemoaned the closure, saying that “losing a Wal-Mart is a blow to the city of Oakland” and adding that “what Oakland needs more of is jobs.” One way to snag those jobs would be to make Oakland more hospitable to businesses that create them. Lowering the minimum wage would be a good start.

It’s harder to count the jobs that were never created in the first place because of the minimum wage. But here’s an anecdote: Wal-Mart also canceled plans to build two stores in Washington, D.C., where the minimum wage is $10.50 and rising to $11.50 in July. A November ballot initiative could bring it to $15.

Councilman Jack Evans, who sits on the district government’s finance committee, reported, according to the Washington Post, that in closed-door meetings Wal-Mart “cited the District’s rising minimum wage”—as well as proposals to force employers to provide paid family leave and a minimum number of hours for hourly employees—as a reason to pull out. “They were saying, ‘How are we going to run the three stores we have, let alone build two more?’ ” Mr. Evans said.

Mayor Muriel Bowser said she was “blood mad” about the store cancellations, but she shares the blame as a proponent of raising the minimum wage. Perhaps she understands this better than she lets on, as she has declined to endorse the proposed increase to $15.

In the face of increasing competition from online retailers such as Amazon, traditional stores like Wal-Mart are minimizing expenses to stay competitive. Substantial minimum-wage increases make the belt much tighter. But businesses that fail to adjust to a changing environment might cease to exist or shrink to mere shadows. This is a reality that progressive groups and legislators may choose to ignore, but businesses do so at their peril. Ask Borders bookstores or Blockbuster video.

Jobs, salaries and benefits increase when businesses thrive. If you want to give working-class Americans a path to the middle class, adopt policies that free up the businesses who want to hire them. Otherwise, you’ve merely priced people out of a job.

Mr. Puzder is the chief executive officer of CKE Restaurants.

Published February 4, 2016 at The Wall Street Journal. Reprinted here Feb. 8, 2016 for educational purposes only. Visit the website at wsj .com.