Wage Increases: Wal-Mart Gets the Ball Rolling

While austerity measures are being applied all over the West, in the United States, Wal-Mart is breaking ranks by offering 500,000 of its employees a wage increase. Over 40 percent of the American giant’s employees will see their minimum hourly wages increase to $9 in April, and they will increase to $10 on Feb. 1, 2016. For the concerned workers, many of whom are women, this potentially means a salary increase of more than 37 percent over two years. Although the announcement was not received warmly by company stockholders, Wal-Mart’s decision to invest an additional $1 billion in its human capital should be celebrated.

By increasing wages, Wal-Mart is not only being altruistic. This decision is part of a very strategic growth plan. To increase its sales, Wal-Mart needs to retain its most qualified employees so it can serve its increasingly demanding clientele. The company knows that its customer service could use some fine-tuning, and that it is extremely hard to improve customer experience when employee turnover is high. By improving its employee training, Wal-Mart is trying to satisfy customers who are looking for more than just low prices.

More importantly, since it came from the world’s largest employer, this decision has sent a clear message to retailers who pay their employees the legal minimum wage. Thus, more than ever, eyes are being turned toward the fast food industry.

For the past few years, some groups have been demanding fast food restaurants pay their employees a $15 minimum wage. Several demonstrations across the world have advocated for the same thing, although in vain. This sector was once considered an ideal entryway into the workforce, but the demographic composition of these employees has greatly changed over time. Even though many teenagers still work in the industry, the average age of fast food employees is now well over 25 years old in many places. More and more, low-income retirees are returning to the workforce to make ends meet. These employees have different expectations than younger, less experienced workers.

This shift toward wage increases comes at a bad time for the industry, and especially for McDonald’s, which has recently published worrying financial numbers. And since royalties are increasing while profits are decreasing, many McDonald’s franchisees are increasingly voicing their displeasure with the fast food giant. With profit margins of a mere 3 to 5 percent, many restaurant owners are wondering how they will be able to pay their employees more. In light of Wal-Mart’s decision, the sector may have no other choice than to follow the retail giant’s lead, if only to show that its social conscience is greater than its desire for profit.

From a macroeconomic perspective, social inequality is greater than ever, according to some analysts. While salaries stagnate in the West, stock prices are rising, while market indexes are shattering records. It goes without saying that large companies have access to an incredible amount of cash assets that would better serve employees than stockholders. Our economic system seems to have excluded many people for some time now, and a lot of workers are realizing this.

Unfortunately, Wal-Mart Canada employees will not be affected by this strategy and must wait. However, the decision of a large company to pay its employees without having the government impose a higher minimum wage demonstrates that human capital has an increasingly important place in the private sector’s corporate strategy. And since the fast food sector includes many individuals whose annual salary is below the poverty line, McDonald’s and other chains may have no other choice than to follow suit. And if that is the case, they will have to seriously rethink their business model.