Macy’s just announced that they are closing 14 percent of their stores next year in an attempt to turn their company around. What is stunning is that the Thanksgiving Day Parade-sponsoring retailer only made $11 million off of $5.87 billion in revenues.
This means that in the second quarter of 2016, Macy’s made less than two pennies for every $10 in revenues, a ratio with which it is impossible to sustain a profitable business, explaining the 100 stores that are being closed.
It is hard to imagine how a company like Macy’s would survive if the federal government compelled them to give even half of their 158,000 employees a $2-an-hour raise through a minimum wage increase.
Assuming Macy’s did not cut its workforce, in two short weeks, the employee paychecks could go up by just over $11 million, eating up the entire profit from the second quarter. In a full quarter, paychecks would go up by $71.5 million, and this doesn’t count the approximately 35 percent more in employment costs that would be paid for unemployment insurance, social security matching, Medicare and other benefits.
Any guesses as to how many stores would close and how many sales clerks would be laid off under this scenario?
And this is why when economics and math meet do-gooder social policy, the person who the do-gooder is purporting to try to help generally loses.
Another lesson from the Macy’s store closing announcement is that, with all the talk about a growing economy, the reality is that when the GDP only goes up by 1 percent on an annualized basis for the first two quarters of the year, it shows up in the bottom lines of major retailers.
Meanwhile, the Obama administration’s Bureau of Labor Statistics reports that real wages decreased for the first quarter by 0.4 percent and by another 1.6 percent for the second quarter. This shows that the slowing economy is real, and people who are voting for economic change are justified.
The economy really does stink for most Americans, and stores like Macy’s are feeling the pinch because when Americans make less money, they spend less money.
And Associated Press reports that analysts from the International Energy Agency believe that “global demand for oil will grow less than expected next year due to a weaker world economy.”
In other words, demand is already weak. And raising the minimum wage now — where costs are already too high in America to do business — will only make this vicious cycle worse, since fewer Americans will have jobs, and they will spend that much less money.
The two questions are: What kind of economic moron would attempt to impose government-mandated higher labor costs going into a slowing economy where the demand for labor is flat or declining? And, why would anyone who claims to want to help workers on the lower end of the pay scale seek policies that give businesses no choice but to eliminate jobs through automation and changing their business model to provide less customer service?
Yet, that is Hillary Clinton’s economic plan in a nutshell. Increase corporate tax and labor costs and somehow expect the economy to thrive. And some disaffected Republicans are voting for her because they don’t like Donald Trump’s tone.
Rick Manning is the president of Americans for Limited Government.