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Wal-Mart’s wage increase isn’t only for good PR

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Wal-Mart announced on Thursday it would give a raise to some 500,000 of its lowest-wage employees. It will make a big difference to those workers, but the company isn’t spending $1 billion merely for the PR, or to mollify its labor force.

Michael Noel, associate professor of economics at Texas Tech, says it’s a matter of retaining employees in a more competitive job market. “You will see more companies do this, because it is that time,” says Noel. “The economy is improving, and when the economy improves, wages improve.”

Zeynep Ton, adjunct associate professor of operations management at the MIT Sloan School of Management, says it’s also a matter of improving the store experience.

David Schick, managing director of equity research for retail at Stifel, says this is why he suggested in a note last week that Wal-Mart invest more in its stores, even at the cost of lower earnings. 

This kind of trade-off isn’t always viewed as a good idea by shareholders, many of whom are focused on short term movements in the company’s stock price. “There’s a leap of faith that if you raise wages or costs to running your business that there will be an outcome that’s better for the business,” says Schick.

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