Wal-Mart's pay hike and the cycle of virtues

The world's largest private employer plans a raise for its lowest-paid workers, a sign of a drive in many countries to hike wages to stimulate economies. Firms need to look beyond the bottom line in how they treat employees.

The Monitor's View

Surprisingly, so much of the world’s economic future this year seems to depend on the answer to a five-word question:

How much will wages rise?

In the United States, for example, the Federal Reserve awaits growth in wages before it will raise interest rates. The prime ministers in Japan and Britain have lately exhorted companies to hike worker compensation to help ensure growth. Germany, which stands accused of relying too much on exports, raised its minimum wage this year to stimulate consumer demand. And China plans to keep raising worker income to force companies to move toward higher-paying high-tech industries.

“Nothing is more important than wage movement,” said Bank of Japan Governor Haruhiko Kuroda recently about his country’s need to stir consumers to spend more and prevent deflation.

Despite being the world’s largest economy, the US has not seen real wages markedly change for at least a couple decades – until recently. In the fourth quarter of 2014, median weekly earnings for workers aged 16 to 24 went up 4.8 percent – higher than any other age group. For 25 to 34 year olds, the increase was 2.4 percent. The Great Recession that officially ended in 2009 may finally be ending in the paycheck of American workers. Yet Federal Reserve Chair Janet Yellen hopes for a 3-4 percent rise in wages before the Fed has confidence in a sustainable recovery.

While more US states have lately raised the minimum wage to above the federal level, the bigger news is that big employers find more reasons to motivate their employees. Last year, retail giant Gap Inc. boosted wages on its own as way to improve customer service. In January, insurance giant Aetna said it will follow suit.

And last week, the world’s largest private employer, Wal-Mart – which has long taken pride in its brutal cost-cutting – announced that half-a-million of its low-wage workers will get a raise in April, one that will be above the minimum wage.

As the US unemployment rate drops, Wal-Mart finds it must compete more to recruit and retain low-wage workers and improve the consumer’s experience of its big-box retail chain. Yet it pitches the raise as its largest investment in workers ever, hoping that showing more respect for employees will pay off in workers being more productive.

Economic pressures such as labor supply still can move wages up or down. But often it is the nonmaterial qualities such as respect and a larger purpose that drive a business and its employees.

Many wealthier countries are trying to recreate a virtuous cycle of higher profits, investments, consumption, and wages that feed off each other. Yet at the micro level, it is company leaders who create a cycle of virtues, beyond the financial figures and toward values that drive workers, who can help sustain growth. Wal-Mart’s voluntary move toward higher wages may be just the spin of that cycle to nudge other companies into following its path.