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BERKO: Apple’s profit margin justifies employee pay

DEAR MR. BERKO: Since getting out of college in 2013, I’ve been working at Wal-Mart in Florida, making $9.40 an hour. My buddy works in an Apple Store, making $31 an hour. His father, who is an executive at Wal-Mart, says Wal-Mart employees will get a $3-an-hour raise by 2018, but I need it now. His father says that in the next five years, all Wal-Mart employees will be unionized and make $15 an hour. Wal-Mart has twice the sales of Apple. Why can’t the company pay me $15 an hour now? Should I work for Apple? – DS, Shalimar, Fla.

DEAR DS: Your questions suggest: 1) You’re not Apple-qualified and 2) you’re lucky to have a job. I recommend that you remain at Wal-Mart (WMT-$71) and improve your working skills.

Last year, Apple’s (AAPL-$96) 110,000 full-time employees produced $233 billion in revenues and earned AAPL $52 billion. That’s a supercalifragilistic 22 percent net profit margin. Therefore, each employee made $481,000 for Apple. But when you consider that there are 20,000 part-timers, you can calculate that each Apple staffer only earned $407,000 for Apple in 2015. And if CEO Timmy Cook had given everyone a $5-an-hour raise (that would have been $10,000 for the year), each employee would have earned $397,000 for Apple. AAPL people are worth what they produce. So are WMT people.

Meanwhile, WMT’s CEO, C. Douglas McMillon, won’t give 2.2 million employees a $3-an-hour raise unless they unionize. A $5-an-hour raise would break the company, while a $3-an-hour raise would crash the stock to below $30 a share. Therefore, I’d ask the various gods in heaven to temporarily subvert the order of the natural laws of the universe, just once, to protect WMT from the stupids and the unions.

WMT’s revenues have been declining. In 2015, WMT’s 2.2 million employees schlepped to and toiled in 12,000 stores to produce $484 billion in revenues. WMT earned $14.7 billion last year, but management expects lower earnings for 2016. So WMT’s employees earned their company $6,700 each last year. WMT’s average employee earns $9 an hour. If employees got a $1-an-hour raise this year ($2,000 for the year), they’d produce $4,700 in profits for WMT. Then management’s priority to reduce costs would shift into warp drive. WMT would close additional stores, lay off more employees, raise prices and have the remaining employees cover the workload of those who were canned. And new technology will be slick and quick to replace human labor. If management raised wages by $5 an hour, WMT shares would plummet like a Steinway from the roof of the Chrysler Building and be worthless. Then, on behalf of shareholders and creditors, a gaggle of barristers would sue management and the directors for gross stupidity.

Early last year, management gave employees raises, bringing the average pay to a whit above $9 an hour. Last October, management announced that WMT would post a 10 to 12 percent decline in share earnings, and despite a $20 billion share buyback, the shares suffered their worst one-day decline in 25 years, crashing from $68 to $60. This year, WMT will strive to pay employees a politically correct $10 an hour. When management announces that goal has been achieved, it will also announce that earnings will fall again. And it will be another bad hair day for WMT’s shareholders.

Apple could absorb $5-an-hour wage increases because its employees produce big profits for their company. But the picture is far different for retailers for which an increase of 50 or 75 cents an hour would be catastrophic. If retailers such as Target, Best Buy, McDonald’s, Sears and Macy’s paid $13 an hour, their profitability would vanish unless they raised prices by 30 percent. Then who would shop there?

DS, you could increase your earnings by learning skills that would make you attractive to employ. Wise unions should give all members that advice – and then teach those skills to help them create value for their employers. But that would be counterproductive to unionism.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com.

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