Wal-Mart announces its first quarter results Tuesday. There’s been a lot of buzz about the world’s biggest retailer bumping up wages. Earlier this year, CEO Doug McMillon announced the company would raise starting pay to at least $9 an hour, effective last last month, and at least $10 an hour starting next year.
Sure, paying employees more comes with a cost—an estimated $1 billion. But Wal-Mart is taking the long view here, says University of California, Berkeley economics professor Enrico Moretti.
“First of all, they’re going to have lower turnover cost, and probably they’re going to be able to attract a better pool of workers,” Moretti says.
The downside: it’ll probably be at least several months before the benefits start to really sink in.
Still, cutting turnover is smart for a company like Wal-Mart, says Neil Stern, senior partner with retail consulting firm McMillan Doolittle. “Turnover is a huge cost for retailers,” he says.
Stern says it costs money to look for replacements, to hire, and to train new workers. And that cuts into profits.
Increasing pay is fine, Stern says, but other things also matter when you’re trying to retain workers, like promotion opportunities and how much fun you have on the job.