On Thursday, Walmart announced that it would raise all employees’ base wages to at least $10 an hour by next year as well as increasing pay at other levels.
In an appearance on CNBC later that morning, CEO Doug McMillon explained how the company will measure whether its $1 billion investment in employee wages was worth it. When asked by the host what metric it will use, he replied, “Comp store sales.” He went on to explain, “It’ll play through retention, the ability to hire the talent that we need to hire… But ultimately, we want associates who are so excited about taking care of customers, thanking them for shopping with us, things like that, that’s got to show up in sales. Won’t happen immediately, but it will happen.”
McMillon may have surveyed the existing research to come to the conclusion that higher pay can increase employee retention and productivity. A recent survey of research from two economists found that raises at major American companies increase productivity and performance, enhance customer service, reduce turnover, and attract better job candidates. One study they looked at even found that more than half the cost of higher wages can be offset through these improvements. A different economist has also found that companies benefit from improved efficiency because they can ask employees to work harder and that higher wages make it easier to recruit and retain workers.
And a recent study of another low-wage industry, fast food, concluded it could absorb a minimum wage increase to $15 an hour through reduced turnover, higher prices, and greater economic growth.
Walmart’s sales could increase another way after its workers’ wages go up: those workers will have more money to spend on the company’s own products. Giving raises to low-income workers in particular tends to pump money directly back into the economy because they spend it, increasing demand by billions. Walmart’s workers, even at a higher wage, would still fall into that group.
Walmart isn’t the only company wagering that higher pay will bring rewards. Last year, the Gap decided to increase its lowest wages to $10 an hour to attract better job candidates, which has already played out. IKEA also decided to increase average pay to $10.76 an hour. And earlier this year, insurance company Aetna announced that it would raise pay at the bottom of its wage scale to $16 an hour to reduce turnover and and improve performance.
It’s yet to be seen how these investments will pay off, but they cut against the notion that higher minimum wages necessarily mean companies have to lay workers off to offset the increase in costs.