Wal-Mart is the biggest private employer in America, with 1.3 million U.S. workers. And many of them will soon see a raise, in the latest snippet of corporate news that suggests a firmer job market is starting to enable workers to successfully demand higher pay.
The company said it would pay even its lowest-level workers at least $9 an hour starting this spring, comfortably above the $7.25 federal minimum wage, and push that to $10 in 2016. The company also said it would strengthen a “department manager” role, giving it a minimum wage of $13 per hour this year and $15 next, thus offering low-wage hourly workers a clearer path to advancement.
Including similar bumps at Wal-Mart-owned Sam’s Clubs, the company expects 500,000 workers to receive a raise at a cost of $1 billion a year, executives said in a conference call with reporters.
Wal-Mart is surely hoping to get favorable media coverage for its decision to offer raises, but it is worth examining the decision less based on whether the company deserves applause on some moral grounds and more based on the economic forces that led it to act. Indeed, the best possible news would be if Wal-Mart executives made this decision because coldhearted business strategy compelled it.
A first reaction to Thursday’s news may be simply: What took so long?
This has been a challenging five-year period in which, despite steady economic growth, average hourly wages for nonmanagerial workers have risen around 2 percent a year, barely more than inflation.
There is no doubt that working on the floor of a Wal-Mart store is still going to be a hard job at a pay level that makes it difficult to get by. But these are enormous percentage gains, and the decision by Wal-Mart comes on the heels of a similar announcement by the health insurer Aetna as well as survey data that also point to a tighter labor market and higher raises in the future.
In its 2007 fiscal year, before the recession, Wal-Mart reported $183,500 in revenue per employee and $5,938 in profit. Not bad, but by 2014 those numbers had risen by 18 percent and 22 percent. The company’s sales and profits rose nicely in that time while the company kept a lid on its payroll. Gains went to Wal-Mart shareholders, not Wal-Mart 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 5 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 do not receive pay increases or other improvements.
Apart from pay, Wal-Mart 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.
The giant question now is not whether there will be some meaningful wage gains in 2015; beyond the anecdotal evidence from Wal-Mart and Aetna, the collapse in oil prices means even modest pay increases will translate into quite large inflation-adjusted raises. The question is whether wage gains will be strong enough to create a virtuous cycle in which rising pay for the workers at the bottom three-quarters of the income scale, who are most likely to spend the money and get it circulating through the economy, will spur more investment and hiring.
To the degree their logic was, “We think we’re going to need to raise wages this much in the next couple of years anyway to retain good workers and maximize profitability, so we may as well get ahead of the curve and get a public-relations bump out of it and announce the plans in a big splashy way,” that would be the best news for U.S. workers.
Because that would imply that it will not just be Wal-Mart workers getting a raise in 2015.