Wal-Mart Increases Pay, Will Wage Inflation Follow?

Wal-Mart, the largest private employer in the United States, announced last week that it will raise wages for all workers to $9 per hour beginning this spring. In 2016, minimum compensation for the retail giant will rise to $10 per hour. The move could signal a turning point for wage growth, which has struggled to outpace inflation since the recession, despite a tightening labor market. While the unemployment rate has fallen significantly, from 6.6% this time last year to 5.7% last month, wages have lagged. Average hourly earnings for production and nonsupervisory workers rose just 2% from a year ago in January. Given the potential for wage inflation to spark consumer confidence and stronger spending in the U.S. economy, the Federal Reserve has kept a watchful eye on this piece of labor related data. Fed Chief Janet Yellen has consistently cited the Fed’s concern that this figure remains too low, and excerpts from the January FOMC minutes confirm that this view remains intact. While a pay raise is certainly positive news for Wal-Mart employees, it remains to be seen whether or not a trend towards higher pay across the country will materialize. After all, as Joseph Lavorgna, Chief U.S. Economist at Deustche Bank, pointed out, most retailers already pay more than Wal-Mart.

Sources: New York Times, WSJ