This is a very good spot by Dashiell Bennett over at Bloomberg. Some of us have been wondering why it was that Walmart, traditionally a low wage employer, recently decided to hoist entry wages to well above minimum wage. Some argue (and they really are, I'm seeing it here in the comments) that it's because a few hundred people out of 1.4 million have shouted at Black Friday events. Others seem to think that management has been shamed into it. However, I, like most economists, would prefer to explain rising wages by things that are happening in the macroeconomy. That is, after all, what we think usually does raise wages. And what Bennett has done is spot two lovely little pieces of statistical information that back up our basic idea that it's the macroeconomy. You should look at that post for the chart about the quit rate, here.
Wal-Mart Inc. (WMT) - Stock Price (Past Year) | FindTheCompany
What we're seeing is an increasing quit rate from retail jobs. That is, people are staying in such jobs for shorter periods of time, going off and looking for (and presumably finding) something better ever more often. And even at the lowest levels of the labor market it does cost something to find a new worker, train them to whatever minimal standard and generally get them up to speed. For a professional worker it's thought to be about 18 months wages and while it will obviously be less than that in front of house retail it still won't be chopped liver.
So that's part of it, it's the Henry Ford $5 a day thing again. No, he did not raise wages so that people could afford his cars. That simply won't work at all. Rather, he had a vast turnover of staff and it was actually cheaper, on net, to pay staff more but to retain them once they'd been trained and not have to go through the recruitment process again.
And the other thing that Bennet spots is this from the Beige Book (stories and economic gossip from the Fed if we're honest about it):
Wage pressures were moderate across most Districts, but some contacts reported increased wages to attract skilled workers for difficult-to-fill positions. In particular, service sector firms in the New York District noted increasingly widespread reports of wage hikes. Contacts in the Cleveland, Richmond, and Kansas City Districts noted increased wage pressure due to the difficulty in attracting and retaining truck drivers. A staffing firm in the Chicago District reported some companies were also willing to raise rates for unskilled workers to reduce turnover, and contacts in the Atlanta District noted increasing entry-level wages.
This again speaks to one of our long standing stories about wages. As Karl Marx pointed out, when there's unemployment wages won't rise. Anyone asks for a raise they'll be shown the door and replaced with one of the unemployed. Similarly, if there's unemployed people and you need more labor, just hire some of the unemployed. But this calculation changes when the labor market tightens. Instead of just being able to hire the unemployed at any old price it's necessary to lure workers away from other firms. And that's obviously only going to happen with the attraction of higher wages. And that's what we are seeing there: wages are being bid up now that unemployment has fallen.
Put the two together and we can see whay Walmart raised wages. Nothing to do with union power or protestors. It's just that the macroeconomy is improving. As it does so workers have a choice about jobs. So more of them are quitting low paid jobs in retail for something better, meaning that Walmart needs to spend ever more recruiting from the diminishing labor pool and then training those people. In such circumstances it may well, as Ford found out, pay to raise wages so as to reduce turnover and recruitment and training costs.
As I've been saying for some time now. If you want the wages of the workers to improve then you should be arguing for a full employment economy. It's the finest kind, the one thing we know actually works in raising the wages of the workers. Walmart here is just a symptom of that.
