Wal-Mart is raising hourly wage for 500,000 full-time and part-time associates, ensuring that they earn at least $1.75 above today's federal minimum wage.
It is great that Wal-Mart is finally treating their employees better given that may employees were on food stamps and Wal-Mart had its own food drive for its employees.
Putting my economist hat on, here are my thoughts.
First, the increase is significant in terms of percentage but not in absolute amounts. So I am not sure if it would make the associates work harder and shirk less. If Wal-Mart wants higher productivity and increased morale of Costco, it has a long way to go. Given Wal-Mart's business model, it may be better if they invested more on automation.
[Quick Update]
According to WSJ, one of the reasons that Wal-Mart is raising the wages is to increase productivity and lower turnover. I am not so sure it that is the case. Wal-Mart had no trouble operating with low wages for many years. I do not think that productivity or turnover suddenly skyrocketed in Wal-Mart. Also, considering the recent economic conditions, I believe that there are actually more productive people who lost jobs and are applying to Wal-Mart. Hence, although the WSJ article proposes a plausible argument, it may not be the case.
Second, why now? Wal-Mart resisted raising wages for quite some time but why now? Is it because the stock price is doing well recently or did the CEO have a change of heart/ philosophy?
Hmmm...I am not so certain. In my opinion, this move was done to experiment and validate their business model. Can Wal-Mart sustain higher labor costs and still maintain its profitability?
It will be interesting to see how this raise works out. I look forward to reading to Wal-Mart's earnings conference calls. I predict that the productivity gains from increased income would not pay for itself and Wal-Mart's profitability is likely to be lower...
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