Roosevelt Institute’s new report is Making the Case: How Ending Walmart’s Stock Buyback Program would Help to Fix our High-Profit, Low-Wage Economy.
Walmart—as our country’s largest retailer and the largest private employer of women and black and Latinx workers—is a tremendous force in our economy. Today, however, the starting wage its associates earn still falls below the federal poverty line. With over 1 million hourly employees, ending Walmart’s stock buyback program and redirecting those funds toward investments in employee compensation would provide a huge benefit to American workers, families, and our economy at large.
From the report:
When companies engage in stock buybacks, they are choosing to not spend that corporate cash on investments in their employees, higher wages, or research and development. Such investments are the foundation of long-term innovation and economic growth. Supporters of buybacks argue that companies conduct buybacks when they no longer have productive uses for their cash: i.e., they do not have productive investment opportunities; the cash returned to shareholders will find a more efficient use at another company through the capital markets. However, this argument has many flaws.
First, investing in a company’s workforce by raising wages and benefits improves a company’s long-term prosperity and potential for innovation.
Second, the claim is based on the faulty premise that only companies without opportunities for productive investments are engaging in stock buybacks; in fact, money is flowing out of firms at a much higher rate than money is returning to them—according to one estimate, $6 is withdrawn for every $1 that is invested.
Finally, proponents of buybacks often ignore the primary reason why companies engage in buybacks: to quickly increase share price and thus boost shareholder and executive wealth.[footnotes omitted]