What Walmart's Pay Hike Proves For Both Sides of the Minimum Wage Debate

Walmart's announcement last month that it will raise its minimum wage to $10 an hour was claimed as a victory by both advocates and opponents of raising the federal minimum wage — an issue that some economists say is about to play a major role in the 2016 election.

The biggest retailer in the country said Friday that it has decided to bump its pay from an average of $9.48 to $10 an hour for part-time workers and $13 for full-time workers, up from $12.85.

The decision followed increasing pressure from labor groups like Our Walmart, which demanded $15 an hour for employees, and a growing movement across the US arguing for increased federal minimum wage. Many states have already passed laws to raise the minimum wage to $9 beginning in 2016.

Related: Walmart Workers Arrested at NYC and DC Protests for a $15 Minimum Wage

But retail industry groups and some economists say that the drive to increase the federal minimum wage would do more to harm the economy than boost its lowest-paid workers, and that Walmart's decision to raise the wages on its own — without mandate — proves that.

"Walmart increased wages because it was having a hard time attracting workers, to the extent any other company would," Diana Furchtgott-Roth, senior fellow at Manhattan Institute of Public Policy, told VICE News. "The fact that Walmart is having a hard time attracting workers and keeping them, and others are too, is due to a tightening in labor supply and declining unemployment."

The National Retail Federation, the trade association and lobby that counts Walmart among its members and has fought against federally mandated minimum wage increases, also voiced its support for Walmart's decision.

"Today's announcement by Walmart regarding associate wages is just another example of the power of the marketplace. Like many other retailers, Walmart made its decision based upon what is best for their employees, their customers, their shareholders and the communities in which they operate," the group said in a statement.

"Government mandates that arbitrarily require businesses to implement politically driven policy are unnecessary and, in fact, create hurdles to job creation, curtail capital investment, and pose as barriers to a sustained economic recovery," it said.

Related: What Will Happen to the Economy If We Raise the Minimum Wage?

Christine L. Owens, executive director of the National Employment Law Project, told the New York Times that it was remarkable that workers were able to convince Walmart to raise its wages, but the move did not go far enough.

"Few could have envisioned a group of workers forcing Walmart, ruthlessly committed to cost-cutting, to unilaterally raise wages," she said. "When compared to the $16 billion in profit that the company rakes in annually, Walmart's promise of $10 an hour — which even for a full-time worker is not enough to keep a family of four out of poverty — is meager."

Rajiv Lal, a professor of retailing at Harvard Business School and author of the book, Retail Revolution: Will Your Brick & Mortar Store Survive?, said that the wage increase is barely effective because it is so small. The amount of press Walmart's announcement garnered shows that the decision was good for PR purposes, but not actually boosting workers out of poverty and giving them a livable wage.

"I think the devil is in the details. How many people are going to be substantially affected by this wage increase is the question," Lal said. "The headline might be much more attractive than when you look at details."

"Given all the concern about income inequality and about how people who are working full time and cannot make a decent living, and the issues for society, a retailer like Walmart increasing the minimum wage is a good move, just how significant is the move is the question," he said.

In contrast, Lal pointed to the state of Washington, which will vote this week on raising the minimum wage to $12 an hour, and the city of Seattle, which raised it to $15, as meaningful steps toward addressing income inequality.

Related: Meet the Group Trying to Kill Seattle's Minimum Wage Hike

The Walmart decision is helpful, however, in showing that the national debate over minimum wage is at the forefront of people's minds, and now stores have to think carefully about it, Lal said.

"The extent that Walmart's move has brought it to the attention of other retailers is good for society and the economy," he added.

Furchtgott-Roth, on the other hand, proposes the theory that the wage increase in Seattle is forcing low-skill workers to move to places that allow lower pay in order to find work. She called the debate over minimum wage "somewhat of a false one," because employers adjust the wage based on the labor pool. If they are forced to raise the minimum wage by the government, the lowest-skilled employees will be priced out, she said. Employees with no job experience will have a tougher time getting hired, she said.

"It's important to state that we need entry-level jobs for entry-level workers. People with low skills have the right to a job also, and some can only get jobs if the minimum wage is low," she said. "Teens that want a summer job aren't going to be able to get a summer job if the minimum wage is $10 an hour."

"We don't want to discriminate against people who are poor in the labor market," she said.

J. Adam Cobb, Professor of Management at The Wharton School at the University of Pennsylvania, said that while both sides are claiming Walmart's decision proves their argument, it was likely many factors that led to the company's decision, including the boost of good press, building good will, getting out ahead of a rising tide of state-level minimum wage increases, and cutting some high turnover costs.

"From a public policy standpoint it's interesting for two reasons. One is you're seeing some of these industry groups that represent the retail sector, saying this is why we don't need a minimum wage, the market will take care of it, firms will raise wages as they see fit. Other people say no, it's because we've been raising the rates around the country and activists have been pressuring firms to do it, so, interestingly, the same data point becomes source of ammunition for both sides of public policy debate," he said.

The debate, he said, has been oddly bipartisan at the state level, with many Republican-led states introducing wage increases and many Republican voters expressing their support. At the federal level, the partisan divide is more evident, he said, and will likely figure into the presidential race in 2016.

"The Democrats are probably going to push for a higher federal minimum wage rate, tied to higher inflation, and I think Republican presidential candidates would be less apt to be so positive about that but will discuss the importance of allowing states to control that," Cobb speculated.

Photo via Flickr