Free Markets Work – Walmart Hikes Wages

Without coercion, statute, administrative ruling, or other fiat, Walmart has decided to #raisethewage to half a million of its employees:

Discount retail giant Wal-Mart (WMT) will give a half million employees pay raises, the company said Thursday. The retailer also reported a mixed quarterly report.

The move ensures hourly associates earn at least $1.75 above today’s federal minimum wage, or $9 per hour, in April. By Feb. 1, 2016, current associates will earn at least $10 per hour. Some states already have a minimum wage at or above $9 per hour, including California, Connecticut, District of Columbia, Massachusetts, Oregon, Washington, Vermont and Rhode Island.

What’s behind this move?

First of all, it’s good public relations. Walmart has been the subject of protests by the so-called “living wage” advocates. As discussed more thoroughly here, a mandated “living wage” really hurts poor people because it leads to higher costs which are then passed on to the consumers. This move by Walmart takes the steam out of these protests.

Second, Walmart likely wants a higher wage to price out competitors. Wages are part of the costs of doing business. When you’re the world’s largest retailer, like Walmart, you can afford to pay more to conduct business. It won’t affect earnings in a dramatic way (meaning Walmart won’t go out of business). Mom and pop stores, however, likely cannot afford to pay Walmart-type wages and keep prices low.

This sort of wage hiking pressure will be felt by Walmart’s big competitors, like Target, Sears, Costco, etc., and also by smaller stores. The larger stores can likely compete with Walmart in this regard and survive paying higher wages. The smaller stores may not be able to do that.

With this in mind, it’s not surprising that Walmart was an advocate of raising the minimum wage by law, in order to put pressure on competitors through government action. It would, in the end, enhance Walmart’s competitive position.

Third, free markets work. It’s much better that Walmart on its own decided to raise wages for its employees. Voluntarism is infinitely better than government fiat. The company and its board made a decision which they believe is in the best interests of Walmart and the shareholders have to accept it, or sell their holdings. Perhaps the board sees this as a way to increase productivity as well as to develop a good marketing campaign to bring in more business. Whether this plan is successful, a voluntary act is the right way to hike wages.

As always, free markets are better markets.