Wal-Mart just gave the economy what it has been waiting for: wage growth.
On Thursday, Wal-Mart announced that it will raise the minimum wage for all of its hourly employees to $US9.00 an hour by April, with this minimum wage set to go to $US10.00 an hour by February 2016.
Additionally, manager roles will see minimum hourly wage go to $US13 an hour this summer and $US15 an hour early next year. In all, these moves will impact 500,000 Wal-Mart employees.
But the big takeaway here is that Wal-Mart, which is often used as a proxy for the health of the economy and the US consumer, is giving a ton of its workers a raise.
As the US economy appeared to pick up steam in the second half of 2014, the missing ingredient was meaningful wage growth for workers.
In January, average hourly earnings rose just 2% over the prior year, which is not the kind of real, sustained growth that the Federal Reserve wants to see as it looks to raise interest rates for the first time since 2006.
There have been, however, indications in recent surveys that US workers are expecting raises this year.
In our latest most important charts feature, Michael Feroli, Chief US economist at JPMorgan, noted that according to the University of Michigan’s consumer sentiment survey, consumers have been significantly more upbeat about their prospects for wage increases over the next year.
And at least for Wal-Mart employees, that increase is here.
The bigger economic point, however, is more important. As the labour market has improved, labour “slack” has diminished and the market has “tightened,” which is to say that the balance of power in the labour market is shifting from employers to employees. And this hasn’t been the case since the years before the financial crisis.
If you look at labour indicators like the JOLTS report — which shows the number of job openings — the labour market has clearly been tilting in the favour of employees over the last half of the year, and an increase in wages is the last piece of this power shift.
Now, the cynics will say that since Wal-Mart’s wage increase only impacts workers at the lower end of the income spectrum, it doesn’t really count. Except that’s not how maths works: Wal-Mart employees who make less money now will make more money in the future.
And this is good for the economy.
This means there will be more consumer spending, more tax revenue, and more workers who are making more money and feeling better about their place in the economy.
Of course, one move from one company does not fix everything in the economy. But no one thing from any one source will.
The point is that the nation’s largest retailer, which employs about 1.4 million people, just gave its lowest-paid workers raises.
In the past, when Wal-Mart has had disappointing earnings people have said it indicates some kind of problem in the US economy.
So fine, if you want Wal-Mart to serve as a barometer for the health of the economy, then it has to go both ways: Wal-Mart’s raise is a great sign for America.
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