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Minimum-Wage Debate Prods U.S. Retailers to Strategize

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Feb. 20 (Bloomberg) -- Even before it comes to a vote, retailers like Gap Inc. and Wal-Mart Stores Inc. are weighing the benefits of a proposed increase in the U.S. minimum wage.

Gap, the largest clothing-focused chain in the U.S., announced plans to boost the hourly wages of its workers to $10 by next year, getting out ahead of a potential federal increase. The change will affect 65,000 workers, the San Francisco-based company said, drawing praise from President Barack Obama.

Wal-Mart, the biggest private employer in the U.S., said it’s neutral on the issue, though the company is assessing the benefits of a nationwide rise in the minimum wage. While such a move would increase its payroll costs, it also could put more money in the pockets of some its customers, said David Tovar, a spokesman for the Bentonville, Arkansas-based company.

Obama and Senate Democrats want to increase the federal rate to $10.10 an hour from $7.25, saying it will bolster the economy and reduce income inequality. While House Republicans oppose the idea and it’s unlikely to pass, the legislative push has helped call attention to the issue -- and forced companies such as Wal-Mart to at least consider the benefits.

“This is further proof that raising the minimum wage has broad support -- left, right and center,” New York Senator Charles Schumer, the chamber’s third-ranking Democrat, said yesterday in an e-mailed statement.

Previous Increase

Support from Wal-Mart helped Democrats push through the last increase in the federal wage floor after the party won control of both chambers of Congress in the 2006 midterm elections. Just three Senate Republicans opposed the 2007 rise, which also drew the backing of more than a third of House Republicans.

The federal minimum wage, established in 1938 at 25 cents an hour, has grown more than a dozen times, most recently in 2009 when it rose by 70 cents to $7.25 an hour. That was the final phase of a three-step increase Congress passed in 2007.

Senate Majority Leader Harry Reid, a Nevada Democrat, plans to bring the latest minimum-wage proposal to the Senate floor in March. This time around, the legislation faces long odds on Capitol Hill. Democrats, who control 55 seats in the 100-member Senate chamber, may struggle to garner 60 votes to advance the bill.

The Republican-led House isn’t expected to take up the bill. House Speaker John Boehner told reporters last month that raising the minimum wage is “bad policy” because it would lead to job losses. Boehner spokesman Mike Steel said yesterday that the speaker’s position was unchanged.

Obama Praise

Against that opposition, Gap’s voluntary wage increase yesterday was a victory for Obama.

“I applaud Gap Inc. for announcing that they intend to raise wages for their employees,” the president said in a statement. “It’s time to pass that bill and give America a raise.”

The company will roll out the wage increase to all six of its chains -- including Gap, Banana Republic and Old Navy -- raising hourly pay to $9 this year and $10 in 2015.

For retailers like the Gap, increasing pay can improve customer service, said Dorothy Lakner, a New York-based analyst with Topeka Capital Markets. It also may be easier for the company to make the change following seven straight quarters of sales and profit growth.

“You treat people well, they’ll treat your customers well,” she said. “Gap had a strong year last year compared to a lot of their peers. That sends a pretty strong message to employees that, ‘We had a good year, but you’re going to be rewarded too.’”

Job Killer?

The National Retail Federation and U.S. Chamber of Commerce remain opposed to a minimum-wage hike, seeing it as a job killer. Other large discount chains, such as Target Corp. and Dollar General Corp., are approaching the issue cautiously. Target declined to say what its stance was, while Dollar General said it’s neutral.

“We are continuing to thoughtfully engage in and contribute to these important policy discussions,” Target said in a statement.

Wal-Mart may be in a better position than other retailers to absorb the wage increase, said Leon Nicholas, an analyst at Kantar Retail in Boston. If rising paychecks put smaller stores out of business, Wal-Mart benefits, he said.

Competitive Impact

“It could knock out small independent grocers, pizza shops, electronics retailers, auto suppliers, lawn and garden stores,” he said. “Wal-Mart gets those customers.”

Labor activists, meanwhile, are calling on the company to raise its pay regardless of what happens on Capitol Hill. Citing Gap’s move yesterday, the United Food and Commercial Workers International Union asked Wal-Mart to do the same.

“It is time for Wal-Mart to stand up and lead by investing back into its 1.4 million U.S. workers with hourly pay increases,” Joe Hansen, international president of the labor group, said in a statement. “Academics at the University of California, Berkeley estimated that Wal-Mart could well afford a wage increase to at least $12 an hour for workers with minimal impact on consumer prices.”

Wal-Mart’s Tovar said the company hasn’t determined the impact on its business of raising the minimum wage.

“You’re trying to predict future consumer behavior,” he said. Would increased consumer spending “offset and maybe even exceed whatever impact you pay out to associates? It’s really hard to model behavior based on these kinds of changes.”

Fast Food

Restaurant chains also have come under pressure. In December, 53 Democratic members of Congress wrote to fast-food executives, including McDonald’s Corp. Chief Executive Officer Don Thompson, urging them to raise wages for store workers.

“Too many hard-working families are being forced to depend on poverty-level wages,” they said in the letter. “Paying fair wages and putting more spending money in the hands of consumers will strengthen our economy.”

McDonald’s, the world’s largest restaurant company, has “always been an above minimum-wage employer,” Thompson said in an interview with Bloomberg TV in July. “We’re going to continue to provide entry-level jobs.”

Hamburger grillers and other fast-food workers at restaurants such as McDonald’s and Wendy’s get about $7 billion a year in U.S. government aid, a report published in October found. With jobs not paying enough to cover employees’ basic needs, an increasing number of working families must rely on publicly funded programs to make ends meet, according to the study from Berkeley and the University of Illinois at Urbana-Champaign.

Taxpayer Costs

When workers tap programs such as Medicaid, food stamps, the earned income tax credit and temporary aid for needy families to bridge the gap between paychecks, the cost is borne by taxpayers, according to the report, which analyzed the years 2007 to 2011.

In the past, Republican leaders have bowed to political pressure to endorse a wage-floor increase. With both the House and Senate under Republican control in 1996, Congress passed and President Bill Clinton signed legislation raising the minimum wage by 90 cents over two years to $5.15 an hour.

The Congressional Budget Office released a report yesterday saying that while raising the minimum wage could wipe out as many as 500,000 jobs, it also could boost the incomes of 16.5 million low-wage workers in an average week.

D.C. Law

Wal-Mart opposed a 2013 bill in the District of Columbia that would have raised the minimum wage for retailers with individual stores of 75,000 square feet or larger and that have companywide annual sales of $1 billion or more.

“If it’s a level playing field for all employers, and we and everyone else can compete on equal footing, then we’re OK with whatever legislation is decided for that particular jurisdiction,” Tovar said.

He declined to say how much the proposed federal increase would cost the company, saying that the information is competitive. Wal-Mart has 1.3 million U.S. employees, and about 4,000 of them currently make either a state or federal minimum wage, Tovar said.

“Business leaders are looking for certainty,” he said. “They want to know what the rules are so they can manage their business accordingly.”

To contact the reporters on this story: Renee Dudley in New York at rdudley6@bloomberg.net; Lindsey Rupp in New York at lrupp2@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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