Last week, Walmart announced that it would be giving a raise to 40% of its workforce. About half a million employees will see their hourly wages rise to $9.00 in the next six months and $10.00 by 2016, well above the Federal minimum wage of $7.25 an hour. The company will be spending about $1 billion dollars in increased pay and revised training and promotion programs. Recently, many companies such as Gap, Ikea, and health insurance provider Aetna Inc. have raised wages for their workers, but as the world's largest private employer, Walmart's decision to increase pay will be more closely watched and could have a larger impact.
Over the years, a job at Walmart has become synonymous with rock bottom pay. An unstable labor market and stagnant job creation made it possible for companies, including the retail giant, to consistently fill positions that had low pay and unsteady hours. In 2013, Walmart had 23,000 job applications for 600 jobs, with an acceptance rate of 2.6%; that's twice as selective as Harvard University (The Washington Post, 3/28/2014). In the years following 2008, low wages were an effective method to maximize profits. However, as an increasingly optimistic labor market continues to favor employees and job seekers, companies may no longer be able to sustain low wages.
In December, the percentage of people looking for work hit the lowest level since 2007. The economy has created more than 3 million jobs in three months; the number of available jobs posted by U.S. employers rose to the highest levels in 14 years; and job quits increased to 2.7 million, their highest level in six years, a sign of workers' confidence in the job market. Although the future of job creation looks sunny, wage growth has remained stagnant. Since 2012, pay has shrunk for people at almost all income levels with the exception of the bottom 10%, which have seen higher wage growth due to state-sponsored minimum wage increases (Economic Policy Institute, 2/19/2015). However, any increase in wages does not do much good for workers since inflation is rising faster than the price of labor. The income for a typical worker today buys fewer goods and services than in 2006 (Pay Scale, 1/12/2015).
The trend of frustratingly stagnant wage growth could start to reverse as the economy continues to improve and the labor market continues to tighten. Walmart's move to increase hourly earnings has already turned the spotlight on other retailers who offer similarly low wages, such as Target and Staples. The wage hikes have also put a spotlight on food service companies like McDonald's, which has consistently been singled out as an organization that doles out rock bottom pay. Companies that could once offer low wages may be forced to increase pay in order to stay competitive, attract talent, and reduce turnover.
Raising wages is not just an advantage to the workers it benefits; it is also a boon for the organizations that employ them. Join us next week for Part 2 of our series and learn why all companies, not just Walmart, should raise their wages.the Benefits of Raising Wages.
Readers, do you think that companies should increase worker pay? Why or why not? Comment and let us know!