In President Obama's State of the Union Address Tuesday, he called for a significant hike to the minimum wage rate in order to bring the lowest of wage earning families above the poverty line. While such a noble effort would be immediately helpful to a good number of the poorest Americans, it might also harm some of America's largest companies on their bottom line and impact shareholder wealth. Do you own one of these companies? In some of these cases, the net impact of a minimum wage hike might be debatable, as the companies in question could also see a boost to sales if poorer Americans have more money to spend.
America's most significant employers are also some of the companies which would be most impacted by a hike to the minimum wage rate. Here's how the shares of America's 10 most important employers reacted to the news the day after the President's declaration. Take note though that Republican Leader John Boehner said Republicans were not in agreement with the President's idea, so the change in trading at that point in the day should be significant. Not knowing when exactly Speaker Boehner spoke makes it hard for me to pinpoint where in the daily chart to look for change in trend. We do know that Wal-Mart (NYSE:WMT) and McDonald's (NYSE:MCD), the two most likely companies to come to mind when thinking of the minimum wage, both opened in the red to start the day Wednesday. Wal-Mart ended it unchanged, while McDonald's closed more than a point underwater.
Company & Ticker
SPDR S&P 500 (NYSEARCA:SPY)
United Parcel Service (NYSE:UPS)
Bank of America (NYSE:BAC)
Some of these employee counts may include a number of overseas workers, but we are also certain that the list does represent the most important employers in America nonetheless. We placed in bold 5 of the 10 important employers which we believe are most likely to see a negative impact from a legislated minimum wage hike. The reason IBM has been left out, despite its importance in terms of workforce, is because of the small percentage of its employees which are likely minimum wage earners. Even in the cases where the IBM job may not require much technical expertise, it's likely to be a union job, and those tend to pay more than the minimum. That last factor certainly applies to UPS and its union workforce as well. However, in the food service and retail industries, the use of non-union workers is common.
The question most would ask with regards to the five major employers we've highlighted-- including in order of importance, Wal-Mart, McDonald's, Target , Kroger and Sears Holdings-- is whether these companies might see more benefit than cost from a more prosperous poorer class in America. After all, the people who do their shopping at these stores and restaurants certainly include, if not contain, the poorest of Americans. Since higher labor costs will directly impact each of these companies, whereas the increase in the discretionary spending of the poorer class will be spread about, we should be able to safely say the net effect to these companies is negative. In fact, those readers who have ever spent a moment under the poverty line will attest to a need to pay late electric bills, rent, and to pay down expensive credit cards, as more likely uses of any new discretionary capital windfalls.
While a significant wage hike is not expected to pass, an increase of some sort might. Take note though that what the President has proposed would only take the minimum wage to a real level equivalent to that paid in 1981 when incorporating inflation. The wage rate would actually have to increase to above $10 to approach the cost of living today after inflation's impact. The debate goes on as to whether the economy would be helped or harmed by an increase of some sort. However, it seems clear to me that the shareholders of these largest employers, and small businesses, who employ a good many workers at the minimum wage rate, would be negatively impacted. I leave a deeper analysis of economic impact for my next article, and keep this piece for the warning of interests in the five companies discussed.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.