Walmart Recent Wage Increase a Free Market Success

Yesterday, Walmart announced that, beginning in April of this year, the company will raise the pay of all its employees to at least $9 an hour. In 2016, the company’s minimum pay rate will again jump to $10. This move will affect approximately 500,000 Walmart employees and, along with several other changes such as increased training and scheduling options, is estimated to cost the company $1 billion.

Walmart’s pay increase follows a number of businesses, including Aetna, Ikea and Gap Inc., that have announced an internal company minimum wage higher than the federal minimum of $7.25 an hour. While some herald these moves as a sign that the states and federal government should increase the legally-mandated wage rate, there is a fundamental difference between a company choosing to raise the internal pay of their employees and government mandating a minimum wage that businesses must pay.

Marketplace factors such as talent recruitment, employee retention and customer service were the impetus for Walmart’s wage increase. Absent a government mandate, some companies have concluded that it is in their best interest to raise the rate at which they pay employees. For example, Walmart has acknowledged that the wage bump will impact profits this year, but believes paying a higher wage rate will provide long term dividends. As a company, Walmart made the business determination that it can invest in human capital in an effort to increase employee retention and in-store experiences. The company evaluated the market and their role in it, and responded by increasing the minimum wage rate of their employees—a move completely in line with ALEC principles and model policies.

The argument that the government should raise the minimum wage rate ignores the differences that exist between businesses. Walmart is much different than your neighborhood corner store or many national quick service restaurants. Government mandated minimum wage increases do not account for these differences and can force some businesses to slow hiring or cut hours due to increased labor costs.

In Walmart CEO Doug McMillon’s statement on the company’s decision, he correctly highlighted that even more important than a starting wage is opportunity. Government-mandated minimum wage increases will rob young, inexperienced Americans of opportunities to build their careers. As they did in the case of Walmart, market forces, not government mandates, should determine wage rates. This is a victory for the free market, and benefits employees and businesses alike.