Wal-Mart raises pay to retain workers as labour market tightens

[NEW YORK] Wal-Mart Stores Inc's pay raises show the world's largest retailer is taking steps to retain its workers as a strengthening US labour market creates more options for job seekers.

The Bentonville, Arkansas-based retailer said it will increase pay for 500,000 of its US hourly workers to at least US$9 an hour by April and then to US$10. The move is part of a multi-year commitment to lift both base and average wages for its US workforce of 1.3 million and, through company-paid training, their skills.

"This is evidence of a tightening labor market," said David Cooper, senior analyst with the Economic Policy Institute in Washington.

Wal-Mart's move comes as the nation's jobless rate has dropped a full percentage point in the past year, to 5.7 per cent in January, close to the level that Federal Reserve policy makers consider full employment.

Job openings increased to more than 5 million in December from less than 4 million at the beginning of 2014. More employment choices and fewer people out of work means employers are under pressure to improve wages and benefits or face higher turnover as people look elsewhere for better jobs.

Wal-Mart's turnover is among the highest for US retailers, said Burt Flickinger, managing director at Strategic Resource Group in New York.

"With higher turnover comes higher costs of hiring, training and lower productivity per person," he said.

Workforce Quality The retailer is doing more than responding to a tighter labor market, said Jared Bernstein, the former chief economist for Vice President Joe Biden and a senior fellow with the liberal Center on Budget and Policy Priorities in Washington.

"It looks like a company seeking to improve the quality of its work force," he said.

Wal-Mart's pay increases may force rivals such as Target Corp to follow suit, said Brian Yarbrough, an analyst at Edward Jones & Co in St Louis.

"This forces all retailers to take a look at their pay levels, but definitely Target," he said. "They have to be competitive." That's enough, according to economists, to nudge up wages in rural parts of the country where Wal-Mart is the dominant employer. Still, the retailer's move in itself isn't sufficient to give much of a boost to US average hourly earnings, which have only grown only about 2 per cent annually for almost all of the five-and-half-year-old economic recovery.

Economists said the labour market hasn't yet improved enough to persuade the Fed to begin raising interest rates.

Minutes of Fed policy makers' January meeting warned that "tepid nominal wage growth, if continued, could become a significant restraining factor for household spending." Wal-Mart's action alone is unlikely to change the most widely watched measure of wages, average hourly earnings, according to Newedge USA economist Omair Sharif. He estimated that the company's pay decision will provide a one-time boost to earnings of about a hundredth of one percent, or little more than a rounding error for an economy with a labor force of more than 155 million people.

While long criticised for underpaying its workers, Wal-Mart was under hardly any political pressure to reverse course on its employment practices.

President Barack Obama proposed in January 2013 lifting the federal minimum wage in stages to US$10.10 from US$7.25. But the odds that the Republican-dominated Congress will act on the Obama's proposal are virtually zero.

The company's action "can't be considered coerced because there's almost no chance of a minimum-wage increase during the rest of Obama's term," said Gary Burtless, a senior economist with the Brookings Institution in Washington.

The White House hailed the Wal-Mart action, calling it "another example of businesses along with cities and states taking action on their own to raise wages for their workers." News of Wal-Mart's pay decision came Thursday as it announced it expects sales growth this year of 1 per cent to 2 per cent, down from a previous forecast of 4 per cent. Investors punished the company for the changes, sending its share price down as much as 3.2 per cent.

BLOOMBERG