Walmart’s Surprise Wage Increase Might Be Good News About the Economy


This is interesting news, especially in the wake of my earlier post about the dismal state of earnings growth in 2014. Walmart is raising wages:

The retail giant, which has been criticized for continuing to pay some employees the bare legal minimum, said that all of its United States workers would earn at least $9 an hour by April [and $10 per hour by 2016]. That would mean a raise for about 40 percent of its work force, to at least $1.75 above the federal minimum wage, the retailer said….Walmart’s move follows in the footsteps of retailers like Gap and Ikea, which both took steps last year to keep pay above federal minimum wage level, in an effort to lessen turnover and attract more lower-wage workers.

….In trying to address other major complaints from workers, Walmart said it would work to make scheduling easier and more predictable, and would also improve employee training.

Why is Walmart doing this? I hope Neil Irwin is right:

The best possible news would be if Walmart’s executives made this decision not out of a desire for good press or for a squishy sense of do-gooderism, but because coldhearted business strategy compelled it.

….The company’s sales and profits rose nicely [between 2007 and 2014] while the company kept a lid on its payroll. Gains went to Walmart shareholders, not Walmart workers. So what has changed? The simple answer is that the world for employers is very different with a 5.7 percent unemployment rate (the January level) than it was five years ago, at 9.8 percent. Finding qualified workers is harder for employers now than it was then, and their workers are at risk of jumping ship if they don’t receive pay increases or other improvements. Apart from pay, Walmart executives said in their conference call with reporters that they were revising their employee scheduling policies so that workers could have more predictability in their work schedules and more easily get time off when they needed it, such as for a doctor’s appointment.

Megan McArdle highlights some recent changes in Walmart’s business strategy, such as a stronger focus on e-commerce, groceries, and better inventory control:

What a lot of these changes have in common is that you need good workers to execute them well. (Terrible things happen in the grocery business unless you have an absolutely passionate commitment to rooting out expired meat and past-it produce.) Keeping stock on the shelves doesn’t sound hard until you try to get resentful teenagers to actually do so. And so forth.

One way to get a more dedicated and experienced workforce is to pay workers more. They’ll stay longer, and they’ll be very eager to keep that job. Wal-Mart had clearly previously concluded that it didn’t need a dedicated and experienced workforce composed of people who were really eager to keep their jobs. Now the company seems to have changed its mind.

From any other retailer, this would just be an isolated bit of news. From Walmart, it’s potentially a big deal—thanks both to Walmart’s sheer size and its impact on other retailers. Maybe, just maybe, it’s a sign that the labor market really is starting to tighten.