Wal-Mart Stores, Inc. (NYSE:WMT) announced it will raise its current minimum wage to$9 per hour in 2015 and add another dollar in 2016. This is to address criticism the company has received and is also part of a labor strategy that is forecasting a shrinking labor pool. The company sees US labor numbers improving and that means the environment will become very competitive and wages are a smart way to insure employee retention and recruitment.
This also puts pressure on other big box retailers to bring their own pay scales in line with Wal-Mart Stores, Inc. (NYSE:WMT)’s or face losing employees and tough hiring positions. Currently unskilled labor floats freely between low-paying entities like big-box stores, fast food operations and other low margins businesses. Besides making workers happy this gives labor activists ammunition to pressure other low payers to make adjustments or face heavy scrutiny. Walmart currently employs 1.3 million workers and the raise would affect about 500k of them.
The move might actually save the retailer money in the long run. The added costs of hiring and training new employees can add up and having a staff that is happy and loyal is an advantage. It will also benefit customer service and productivity. Wal-Mart Stores, Inc. (NYSE:WMT) can still employ a strategy of keeping employees at the part-time level to allow it to save on benefits and such to compensate for the added labor dollars. The biggest concern though is the effect it will have on competitors. Walmart operates on low margins and high volume. Other big box retailers may not be able to compete with Walmart in that aspect and have to pass on giving the pay bump to its people. This in turn could create a backlog in the non-skilled labor pool.
The stock is sitting at support right now. There is the chance investors will not see the raise as the good thing the labor market does. Every added dollar of labor is a dollar taken out of the profit pool. The stock may stagnate for a while this plays out.