Just a few weeks ago, Wal-Mart announced that it would raise the wages of 500,000 of its employees to $9 per hour by April and over the course of the year to over $10, currently 38% higher than the federally mandated minimum wage of $7.25. Wal-Mart, as the nation’s largest private employer, is set to lose profit as a result of the move. However, Wal-Mart executives have stated that the move was made to attract more skilled workers while also reduce the rate of the company’s employee turnover, benefitting the company in the long run.
Many economists, in response to Wal-Mart’s announcement, believe that this move will trigger other large-scale employers of low-wage employees (i.e. fast food restaurants) to make similar moves in the weeks and months to come. Demand for low-wage employees has risen continually in the past 5 years and looks to continue to rise as the economy experiences post-recession expansion. Interestingly, economists have also pointed out that many of these employees who are receiving this raise currently receive government benefits and as a result, the wage increase will reduce stress on these government programs.
The debate over minimum wage has been a political hot-button in recent years and this development undoubtedly continues to fuel the discussion. What are some of the other potential large-scale effects that may occur with this announcement? It will be interesting to monitor this development going forward and see if any other large companies or employers follow suit in raising their lowest wages.
http://www.wsj.com/articles/wal-mart-plans-to-boost-pay-of-u-s-workers-1424353742?mod=WSJ_hp_LEFTTopStories
http://blogs.wsj.com/economics/2015/03/02/whats-behind-restaurant-workers-faster-rising-paychecks/
3 Comments
It is particularly note worthy that it is Wal-Mart raising wages in this scenario. Wal-Mart is often a target for individuals in support of raising the minimum wage. It will be interesting to see how Wal-Mart’s announcement will affect wages of other large-scale employers of low-wage employees and the minimum wage debate
Will Wal-Mart lose from this? Or rather will lower turnover let them put more effort into training workers, increasing productivity and thus profits? When Henry Ford announced pay of $5 a day in 1914, on the eve of WWI, it wasn’t because he was a do-gooder, it was because he faced turnover of 300% and that was costing him money. With higher wages he could be selective about who he hired, and cut his training costs to almost nothing. Higher pay might let Wal-Mart workers feel a bit of pride in their job, and help WM hold off Target and other competitors who offer a more pleasant shopping experience.
Wal-Mart may be feeling pressure from other companies such as Costco, which has very low turnover rate and is known for providing great benefits for their workers. Even in the low skilled job market competition can be tough and it is important for companies to respond to market incentives in order to create better working environments. As Professor Smitka mentioned Henry Ford was losing money based on his 300% turnover rate. Wal-Mart may initially lose profits from this rise in costs that they will be paying employees but it will be beneficial to them in the long run. Fortunately, Wal-Mart is a profitable enough business that they have the ability to be able to raise their minimum wage without collapsing.
Comments are closed.