The Meaning of Walmart's Wage Hike | The Weekly Standard

The Meaning of Walmart's Wage Hike | The Weekly Standard

Markets work. That’s the message from Walmart’s decision to raise its starting wage for 500,000 of its 1.3 million US employees to $10 per hour starting next year. That’s 37% above the statutory minimum of $7.25. No, the notably cost-conscious company, the largest private-sector employer in America, the world’s largest retailer, and a company that has prospered by making stuff available at prices that lower- and middle-income Americans can afford -- microwave ovens go for $44 -- didn’t suddenly turn wildly philanthropic. Or decide to bow to pressure from President Obama, who recently attacked office-supply company Staples for what he deemed indefensibly low wages in the face of its high profits, or from trade union organizers. Instead Walmart responded to pressure in two markets.

The first is the retail market in which it competes for customers. Until low gasoline prices fattened the wallets of its customers in the fourth quarter of last year and drove customer traffic up for the first time in two years, Walmart was struggling to retain the loyalty of its customers. In part, but only in part, this was because those customers had not benefitted significantly form the economic recovery.

The second market in which Walmart found itself at an increasing competitive disadvantage is the labor market, a disadvantage that affected its ability to compete for customers. The company found itself employing increasingly unresponsive and at times surly sales staff and poor in-store managers. Waiting times to get to cashiers became intolerable, food past its sell-by date was left on display, stores became dingy and unattractive, and staff were not deployed efficiently, leaving stores under-staffed at peak times. The better employees, from starting-level workers to store managers, were being lured away from Walmart by other retailers such as Starbucks, Gap, and Ikea as a recovering labor market drove the unemployment rate down from 10% in October 2009 to 5.7% last month. Hiring by businesses is at its fastest pace since 2000, and the job-vacancy rate at its highest level since 2001 as employers find themselves unable to find suitable workers to fill out their staffs.