Wal-Mart recently announced it will start paying all of its workers at least $9 per hour. TJ Maxx and Target have now followed suit. I’m being asked frequently if these moves are a response to the minimum wage protests or other business interests. It’s impossible to tell if you read the press releases—companies never tell you exactly what’s going on the boardroom—but I think both are factors.
Wal-Mart is the most protested and sued corporation in the US. Its customers are driven primarily by value and convenience. Still, most Americans like to “feel good” about where they work and shop. Raising wages at the bottom certainly helps companies like Wal-Mart and Target fend off some of the social criticism. If customers are willing to base their shopping decisions in part on retailer image, then these companies could be making a wise business decision.
Nonetheless, Wal-Mart and Target must compete for labor. With the employment picture improving a little—especially in certain markets—retailers must deal with reality. If you pay less than your competitors, then you’re likely to lose your best workers. There’s no doubt that both Wal-Mart and Target are raising wages for certain employees because their leaders believe they need to do so for competitive reasons.
There are several take-home points here. First, corporate social decisions are usually just business decisions. Pressure from social groups calling for changes such as higher wages, better benefits, or more products made in the US can influence business strategy, but this is unlikely to occur unless it is necessary to keep customers happy. Put another way, Starbucks is often touted as a very “socially responsible” firm because of its human resource and environmental practices, but its customers seem to be willing to pay more—a lot more—for coffee there. For Starbucks, it’s a good investment. For companies like Wal-Mart and McDonald’s, it’s often not.
Second, raising the minimum wage is irrelevant when competitive pressures make it more difficult for companies to attract and retain employees. The minimum wage is only relevant to workers whose market value is really less and therefore, would earn less without it. Wal-Mart, Target and other retailers are making proactive decisions to pay market value above the minimum wage.
Finally, companies like Wal-Mart are criticized primarily because they are large, successful, cost-conscious firms. The criticism hasn’t stopped because of the impending wage increases. Search “Wal-Mart” in Google News and count the number of negative stories. Those who despise Wal-Mart will continue to do so. It’s about capitalism, not just wages.