Thursday, March 12, 2015

Why Is Walmart Raising Wages?

by Benn Steil and Dinah Walker

On February 19, Walmart announced that it was raising its minimum starting wage to $9 an hour.  Since Walmart is famous for its ruthless cost management, this appeared to be a significant sign of a tightening labor market.

New York Times columnist and Nobel economist Paul Krugman certainly thought it was significant: “there will be spillovers,” he wrote. “Walmart is so big that its action will probably lead to raises for millions of workers employed by other companies.” But he rejected the idea that it said anything about the state of the labor market.  Walmart, he said, was raising wages in spite of wage pressures that were insufficient to justify it.

So why are they doing it?

“Walmart’s move tells us,” he writes elliptically, “that low wages are a political choice, and we can and should choose differently.” Many paragraphs later he states that “Walmart is under political pressure.” The implication is that the company has bowed to it.

Curiously, Krugman offers no evidence against economics as an explanation, and no evidence in favor of politics.  Yet his policy conclusions are sweeping: the government “engineering a significant pay raise for tens of millions of workers,” through “substantial” increases in minimum wages and increased collective bargaining rights, is “much easier than conventional wisdom suggests.”

We prefer to look at the data.

Retail-sector wages have risen significantly over the past year, and, as today’s Geo-Graphic shows, far faster than wages in the private sector as a whole: 2.8% vs. 1.6%.

In short, Walmart is just being Walmart: making a rational decision to attract and retain workers in a tightening retail labor market through greater compensation.  Period.

The above originally appeared as a Council on Foreign Relations briefing.


  1. Q1 GDP Alarm! Average Hourly Earnings Plunge To 1.6 Percent YoY Despite Massive Federal Reserve Intervention

    Average hourly earnings have been falling since August 2014 to a current 1.6 percent growth YoY … despite the 4.5 TRILLION in Federal Reserve Asset Purchases and near-zero Fed Funds target.

  2. I've always wondered whether Krugman actually believes what he writes, or whether he is just being a good little paid stooge. If he is just trying to give his masters their money's worth, I guess he is to be commended. I think.