Squeezing Suppliers to Pay Wages

Standing in line marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby & the Range

Building on last week's missive, another example of consequences likely unanticipated by those seeking to force minimum wages higher. Earlier this year Wal-Mart (WMT) raised wages for bottom-level employees in response to external pressures and in advance of legal wage hikes. At the time, it was observed that, because WMT competes using a low cost strategy, that passing along those cost increases to customers in the form of higher prices would be unlikely.

Instead, WMT has been squeezing its supply chain for more efficiency. A particularly noteworthy initiative is to charge suppliers storage fees for locating inventory in WMT distribution centers (DCs) and retail stores prior to sale. btw, the idea of suppliers getting actively involved in restocking DCs and store shelves was initially WMT about a decade ago.

Predictably, suppliers have been complaining. Ultimately, there will be less employment in WMT's supply chain as a result of these initiatives.

The lesson: force minimum wages higher and there will be less people employed--either with the targets of that force or with their trading partners.

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