Why Wal-Mart is cutting back on worker hours

Wal-Mart giveth, and Wal-Mart taketh away.

In the midst of a $1 billion spending spree to increase workers’ wages and offer more paths to promotion, the retail giant says it is reducing the number of hours some employees work in an effort to keep costs in check, Bloomberg reports.

The move comes after Wal-Mart reported a drop in second-quarter profits – due partly to rising labor costs following the company’s April decision to raise its minimum wage to $9 an hour – and epitomizes the crux of the wage debate: Does a higher minimum wage result in fairer pay and better working conditions, or does it induce companies to take steps that negatively affect workers in order to control costs?

A similar question pops up almost every time a new labor standard is introduced. When the Affordable Care Act required firms with 50 or more employees to provide health coverage for those who work 30 hours a week or more, some analysts said the mandate – instead of helping provide healthcare for more workers – forced businesses to fire employees or cut worker hours to avoid paying the health costs.

“Instead of providing affordable health care coverage to employees, the law will effectively take hours and wages away from Americans who need and want full-time jobs,” said Bruce Josten, executive vice president for government affairs at the US Chamber of Commerce, in a statement. “That’s bad for businesses and their employees.”

A parallel debate ensued in June after President Obama and the Labor Department unveiled a plan to extend overtime pay to 5 million additional salaried workers. As The Christian Science Monitor’s Schuyler Velasco reported:

[The plan], while applauded by labor advocates, was coolly received by the country’s business interests, who are warning that it could prompt employers to reduce hours and keep workers from advancing into salaried, managerial positions. 

But those in favor of the changes argue that the new rules will actually incentivize businesses to boost hiring while retaining their valuable salaried workers, at more reasonable hours.

In the face of conflicting pressures from labor advocates and investors, Wal-Mart finds itself at the center of a similar discussion.

The company said in February that it would raise wages for 500,000 US employees, a decision applauded by labor groups who have long targeted the world's largest retailer for its rock-bottom wages.

"We are so proud that by standing together we won raises for workers, whose families desperately need better pay and regular hours from the company we make billions for," said Emily Wells, a Wal-Mart employee and a leader for the protest group OUR Wal-Mart, in an email to the Monitor at the time.

The company’s latest move has left advocates crying foul. 

"We now have further evidence that Wal-Mart's so-called 'wage increase' was nothing more than a cruel PR stunt," wrote Jess Levin, a spokeswoman for the union-backed Making Change at Walmart campaign, in an email to CBS News. "Hard-working Wal-Mart workers – many of whom did not even see a raise in pay – are having their hours cut all so Wal-Mart can pad its bottom line."

To some analysts, however, the cuts were to be expected, as the retailer struggles to strike a balance between improving service and working conditions, and turning a profit that will keep investors happy.

“It's not just raising wages, they have put labor back into the stores," Brian Yarbrough, an analyst with Edward Jones, told CBS. "The problem is you're putting all these investments in the stores and all these expenses, and you aren't getting the (expected) sales return. It's crushing profits."

Wal-Mart has defended the decision, saying that the reduction in hours is happening only in places where managers have overstaffed stores, according to a company spokesperson. The cuts won’t affect efforts to increase staffing, cleanliness, and stocking, and shorten checkout lines, the company said.

"Managing hours is a routine part of running a sustainable operation, and in [a] select number of stores, it requires keeping those hours to what was originally budgeted,” Wal-Mart said, according to The Associated Press.