It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
– Adam Smith, Wealth of Nations, 1776
Walmart Stores Inc., the biggest private-sector employer, by next year will boost the pay of its U.S. employees to at least $10 an hour, significantly exceeding today’s $7.25 U.S. minimum wage.
Walmart will also make workers’ hours more predictable by giving them their schedules at least two and a half weeks in advance.
Why did Walmart increase its annual costs by $1 billion and improve the working condition of its workers?
Adam Smith, the famed Scottish philosopher and economist, stressed the importance of the marketplace. One of the main thrusts of his work was that, to attract and keep workers, employers have to provide competitive working conditions.
Walmart and other employers are finding a tightening labor market and rising competition for lower-paid workers. The labor market is adding jobs at the best pace since the late 1990s and, in a sign that the labor market is tightening, the unemployment rate fell to 5.7 percent last month from 9.8 percent five years ago.
Mike Bufano, senior vice president for planning at Panera Bread, the bakery-café chain, told investors in a conference call this month that the company is paying higher wages because of a “war for talent.”
Walmart wants to lift the morale of its employees. Chief executive Doug McMillon said on the company’s earning conference call Feb. 19: “We want associates that care about the company and are highly engaged about the business and leaning in.” Walmart wants to improve shopper experience by having cleaner stores, well-stocked shelves and better communication with its customers. It sees better-paid employees as a way to achieve those things.
Political pressure also is mounting to establish higher minimum wages. Several states and cities have raised the minimum wage far beyond the federal minimum. Twenty-nine states now exceed the federal minimum, which has not risen since 2007, according to the National Conference of State Legislatures.
Walmart’s plan affects about 500,000 employees at Walmart and Sam’s Club stores. This covers nearly a third of the company’s 1.4 million U.S. workers.
Walmart’s substantial pay increases should help America’s low-wage workers, who have suffered stagnant incomes since the 2008 recession.
As Jeff Naroff, chief economist at Naroff Economic Advisors, wrote in the online publication Daily Local News, “Their action could create a floor under wages, and others may need to follow in order to retain and attract workers.”
President Obama has proposed raising the federal minimum wage to $10.10 an hour, but that effort has stalled in Congress. A White House spokesman praised Walmart’s decision: “Today’s announcement is another example of businesses, along with cities and states, taking action on their own to raise wages for their workers, recognizing that doing so can raise productivity, reduce turnover and improve morale.”
Let us not lose the momentum gained from Walmart’s change in policy.
The economic gulf between the richest Americans and rank-and-file workers has grown into a central political issue for both parties. Walmart’s boost in pay sends an important message to lawmakers. It is time to raise the federal minimum wage and index it to inflation. This would restore much of the buying power that minimum-wage workers have lost to inflation over the last five decades, despite the occasional adjustment by Congress.
There is a growing recognition that the current minimum wage is too low and that higher wages may speed up economic growth because it boosts consumer spending. Therefore, a robust minimum wage is a key building block of sustainable economic recovery.
Originally published in the Sarasota Herald-Tribune
