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.

Neil Irwin: As Walmart Gives Raises, Other Employers May Have to Go Above Minimum Wage
The Atlantic: Why Walmart Raise Its Wages
Walmart: Fact Check: The New York Times: “The Corporate Daddy”
Wall Street Journal: Wal-Mart Looks to Bump All Workers’ Pay Above the Minimum Wage

Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”

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