Here are the real reasons Walmart is raising wages

Working at Walmart is getting better.
Working at Walmart is getting better.
Image: AP Photo/Julio Cortez
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Walmart, the biggest employer in the US, is raising its starting wage to $11 an hour and will begin providing 10 weeks of maternity leave.

It’s big news for a company famous for its stingy approach to pay and benefits, and CEO Doug McMillon credited the new tax plan signed into law by president Donald Trump in late December as the impetus. “Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the US,” he said in a statement today (Jan 11.)

The corporate tax rate will fall from 35% to 21%, and Walmart—which paid about $6 billion in US corporate income tax last year—is sure to benefit. A lower tax bill should also help even the scales in Walmart’s competition with Amazon to be the world’s retailer of choice. Walmart has paid $64 billion in corporate taxes since 2008, compared to Amazon’s paltry $1.5 billion, according to NYU marketing professor Scott Galloway. (Amazon’s tax bill is small because it books little corporate income).

The pay raise will cost Walmart about $300 million annually. A one-time bonus—up to $1,000 per employee, based on experience—will mean another $400 million. Having some additional cash on hand will help pay those expenses, which also include six weeks of paid parental leave for non-birth parents, and $5,000 of financial assistance for adoptions.

Lower taxes may have sped the introduction of higher wages and better benefits, but they are part of a Walmart’s long-term strategy of investing in its US labor force.

Under McMillon, Walmart concluded it needed to make it stores more attractive and efficient to generate the returns that will allow it to compete online. That meant raising wages and improving training, to reduce turnover and boost the caliber of its workforce. In 2015, Walmart announced it was investing $2.7 billion over two years to lift the starting wage to at least $9 an hour, with an additional dollar-an-hour bump after the completion of training. Investors hated the decision, and sent shares plummeting, but the move has paid off in improved sales and earnings and now Walmart’s stock price is at an all-time high.

Because of Walmart’s dominant size—with 1.5 million workers, one in every 10 US retail employees works for Walmart—its pay increase is putting pressure on competitors to raise their wages. Target, for example, announced in September it was raising its starting minimum to $11 an hour. With the US nearing full employment, retailers may finally be competing for labor through wage increases.

There are other reasons for Walmart’s move. State and local minimum wages are increasing across the country, and will reach $12 an hour in seven states by 2020. Walmart would have to raise wages for many employees whether it wanted to or not.

Walmart is also eager to change the narrative that it’s a company hostile to workers. Its labor practices have effectively banned it from some of the country’s biggest and richest cities, including New York, San Francisco and Seattle, and made it a pariah in progressive business circles. It took decades for Walmart to build that reputation, and it’s only through the steady improvement of its working conditions that it can shed it.