Raises at Wal-Mart: Why You Should Pay Attention

Wal-Mart is raising pay for the majority of its hourly-wage employees, according to a recent article in the Wall Street Journal. Great news for those people but hardly of much interest to the rest of us, right?

But maybe it should be.

According to the Journal article, the move will affect close to 1.2 million employees of Wal-Mart and Sam's Club stores.

Want some context on that number? Try this: if Wal-Mart built a city just for its hourly employees, it would be the 10^th-largest city in the US by population, right behind Dallas (which has the gall to include people who don't work at Wal-Mart—like children—in its census).

Want more context? Sure: Wal-Mart's hourly employees make up approximately one-half of a percent of the entire US working-age population. When you add in salaried employees, the company directly employs more people than all of the branches of the US Armed Forces, combined.

Like it or not, then, Wal-Mart is a big deal in the American employment landscape, and when it makes a move, we should all be paying attention.

Here's why this latest announcement is a big deal:

It Proves the Labor Market is Tightening

Remember all those "Fight for $15" campaigns that have been springing up across the country, in an effort to get the minimum wage closer to a level that it's actually possible to live on? It's entirely possible that they've hit home, and that this raise is proof that huge corporations will listen to people, if only they raise their voices loud enough.

A more likely explanation, however, is the fact that we're not in an employer's economy anymore: the unemployment rate stands at just 5 percent nationally, and the number of people voluntarily leaving jobs has been edging higher in many sectors. That kind of picture tends to translate to high employee turnover for companies that aren't doing enough to keep their workers satisfied—a fact borne out by the Journal piece, which reports that the firm suffers some half a million employee losses every year. That's a lot of money in recruitment and training costs—some of which will surely offset the additional outlay on wages.

It Means Other Companies Will Follow Suit

For the same reason, Wal-Mart's competitors—including fellow national big box outfits such as Target and Sears, as well as local/regional grocery chains—will be forced to follow suit if they want to be able to attract and retain their own employees. And the knock-on effects are likely to be felt far beyond that sector: fast food workers, for example, have recently been campaigning for wage increases that are more likely to arrive in the aftermath of this kind of announcement.

It Could Reduce Government Spending

The last time Wal-Mart made headlines for its wages, it was in relation to food stamps: the company's starting wage for many employees was low enough in many states that its employees qualified for government assistance with their grocery bills. While it won't eliminate that problem entirely, this raise does have the potential to lift the incomes of many Wal-Mart employees above the food stamp threshold, cutting government costs in the process. Sure, that's not the most overwhelmingly positive sentence ever written, but it represents a step in the right direction for the time being.  

It Could Also Have a Down Side

It would be remiss not to point out that higher wages could well be used as a justification for raising prices on products, or for cost-cutting efforts elsewhere. Wal-Mart estimates that the price of its 2% increase would be in the region of $2.7 billion by the end of fiscal 2017—a hit to the bottom line that management and investors are sure to want to see a replacement for somewhere. Which means that the key—at least for the company's own employees, will be if the wage increases can stay ahead of any inflation.

The old saw about the US economy used to say that "As goes General Motors, so goes the nation." Given the size and influence of the company that Sam Walton founded, perhaps it's time for an update.