What’s Behind the Walmart Wage Boost?

Mega-retailer Wal-Mart made news last week when it announced that it will raise
starting wages to $11 per hour, will offer bonuses up to $1,000 to many of its workers
and expand maternity/paternity policies. Should the million or so employees who will be
affected by the moves thank the GOP tax cut? The company indicated that changes in
the law were at least partially responsible and certainly the billions that the company
stands to reap from the corporate tax rate dropping from 35 to 21 percent will more
than offset the $700 million cost for the new policies.

That said, Wal-Mart’s move likely says more about the competition for workers, than
the benevolence of the nation’s largest employer. With the unemployment rate at a 17-
year low of 4.1 percent (down from a peak of 10 percent in 2010) and e-commerce
retailers like Amazon luring would-be workers, Wal-Mart had to make the move to
remain competitive. In fact, the gesture is the continuation of a trend: this is the third
U.S.-wide minimum wage increase at Wal-Mart since 2015. Other retailers, like Gap and
Costco have made similar moves and Target has pledged to increase its minimum wage
to $15 within three years.

And while it is certainly better to make $11 per hour than $10, the increase still amounts
to annual pay of about $22,000, which may not be quite enough to spur a big jump in
spending. According to economist Joel Naroff, while “after-tax earnings will be good this
year…it is not clear that consumption will rise significantly this year…the lower and
middle income tax cuts could go to paying off credit card and loan payments, not
necessarily new spending.”

The additional money in our pocketbooks may also need to be diverted to energy costs.
As a reminder, crude oil prices collapsed at the end of 2014 - and then rebounded a little
- and then plunged again at the end of 2015 and in early 2016. Last week, crude oil,
which has jumped by nearly 20 percent over the past year (49 percent since late June),
to three-year highs, just another sign of surging global growth. The increase has pushed
up prices at the pump by 18 cents from a year ago.