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Latest News - February 2015

February 19, 2015
Wal-Mart's Raises Reflect Tighter Jobs Market

Wal-Mart ’s pledge to raise pay for half a million U.S. employeesreflects a tightening labor market and rising competition for lower-paid workers. It also could amplify gains for low-wage workers across the nation as other companies follow the nation’s largest private employer.

The retail behemoth on Thursday said it would boost wages for its U.S. employees to at least $9 an hour this year, and to $10 an hour by Feb. 1, 2016. The move by Wal-Mart, alongside similar action from large employers, could signal a turning point for wage growth after weak gains since the economic expansion started almost six years ago.

“Wal-Mart’s move to raise their employee pay base is a sign that the labor market has already tightened,” said Joel Naroff, chief economist at Naroff Economic Advisors. “Their action could create a floor under wages and others may need to follow in order to retain and attract workers.”

Employers are adding jobs at the best pace since the late 1990s. As result, the unemployment rate fell to 5.7% last month from 6.6% a year earlier, a sign of diminishing slack in the labor market. But so far that has largely failed to produce robust wage growth for most workers. Average hourly earnings for production and nonsupervisory workers rose just 2% from a year earlier in January.

Wal-Mart’s national presence, especially in rural and suburban areas where the cost of living is lower than it is in large cities, will ratchet up competition for workers nationwide. The raises affect about 500,000 employees at Wal-Mart and Sam’s Club stores, or about a third of the company’s 1.4 million U.S. workers.

The competition for workers even at the lower end of the wage spectrum is putting pressure on employers. Starbucks Corp. raised its starting pay last month. Gap Inc. last year said the clothing store would raise starting pay to $10 an hour. Others such as Costco Wholesale , Hobby Lobby and IKEA Group tout that all their workers earn more than the minimum wage.

And raises for retail workers have been better. Average hourly pay for nonsupervisory workers in the sector rose 3.2% in January from a year earlier. Still, pay for a rank-and-file retail worker is $14.65 an hour, according to the Labor Department, while the average hourly wage for all private-sector, nonsupervisory and production workers is $20.80 an hour.

Hourly pay in another low-wage field, hospitality and restaurants, advanced 3.5% since last January for non-supervisors.

Wages are increasing at the Hilton Phoenix/Mesa in Mesa, Ariz., as the hotel has returned to 2007 levels of employment after declining about 20% in the wake of the recession. The hotel conducts surveys of rival resorts’ wages and has handed out raises to avoid losing workers.

“We’re in a highly competitive market and there have been several new resorts and restaurants to open recently,” said General Manager Gary Levine. “Compared to five or six years ago, people have a lot more disposable income to spend.”

Several factors support stronger pay gains for low-wage workers.

Consumer spending has been the primary driver of the faster economic growth over the final three quarters of last year. Household outlays advanced at a 4.3% pace in the fourth quarter, according to the Commerce Department. That was the best quarterly gain in almost nine years.

The stronger spending, supported by improved consumer confidence and lower gasoline prices, “could have a trickle-down effect on wages in certain fields like restaurants and retail,” said Thomas Lubik, economist at the Federal Reserve Bank of Richmond.

But the effect of Wal-Mart’s pay raise on the broader economy remains to be seen. After the raises, Wal-Mart’s average full-time worker will earn $13 an hour, up from nearly $12 an hour. The new figure remains below the industry average.

The majority of retailers already pay more than Wal-Mart, “so this isn’t going to move the needle much,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank .

Government officials at the local, state and national levels have been pressing for legislation to raise wages for the lowest-paid workers to improve living standards and fight widening income inequality.

“This year for the first time we have over 50% of the states [with minimum wages] higher than the federal minimum wage,” Wendy’sCo. chief operating officer Bob Wright told investors this month. “We are under pressure, folks, for how we can manage our restaurant economic model.”

The federal minimum wage has remained stagnant at $7.25 an hour since 2009, but after minimum-wage increases that took effect at the start of the year, seven states—including California, Connecticut and Massachusetts—have pay floors at or above $9 an hour. Washington has the highest state minimum at $9.47 an hour.

At least two more states—Minnesota and New York—plan to set $9 an hour minimum wages later this year. By 2018, at least six states will have rates of $10 or more.

Labor leaders, who have been vocal supporters of minimum-wage increases, took some credit Thursday for Wal-Mart’s move.

Richard Trumka, president of union federation AFL-CIO, credited organized labor and workers for Wal-Mart’s decision to raise its minimum wage.

“That’s a response to all the focus we’ve put on their low-wage model,” Mr. Trumka said. “That’s a good thing but that’s not enough yet,” he said about the planned amount.

The AFL-CIO recently stepped up its push to raise pay for low-wage workers, in part by kicking off a series of state-based summits to spotlight the issue. The federation has also warned that politicians who want its support will have to do more than just lightly talk about the need to address low wages.

But the National Retail Federation, the industry’s lobbying group, said Wal-Mart’s decision shows that lawmakers’ efforts to raise the minimum wages are “politically driven” and “unnecessary.”

The announcement “is just another example of the power of the marketplace,” said NRF Chief Executive Matthew Shay. “Like many other retailers, Wal-Mart made its decision based upon what is best for their employees, their customers, their shareholders and the communities in which they operate.”




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