Walmart's Raise Could Be A Turning Point For The Whole Economy

Group of one hundred dollar banknotes flying and falling down, isolated on white background.
Group of one hundred dollar banknotes flying and falling down, isolated on white background.

Walmart just gave half a million people a raise. Could you be next?

The retail giant announced on Thursday that it would increase the minimum pay for its workers to $10 an hour, affecting roughly a third of its 1.4 million employees.

The move is a sign that finally -- finally! -- the falling unemployment rate is putting pressure on companies to raise wages. The unemployment rate recently tumbled to 5.7 percent from a Great Recession high of 10 percent in 2009. Typically a better job market leads to people getting raises, but wages have been stubbornly slow to recover.

“This could be a turning point in the wage numbers,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said of Walmart's announcement. “Bargaining power is shifting back toward workers.”

Walmart CEO Doug McMillon made a similar point in an interview with CNBC on Thursday.

"It's great to see the job market getting better, and the market works, so we're adjusting to that market," he said.

To be sure, these Walmart workers are among the lowest-paid workers in the economy. But such workers benefit the most from a small wage hike and will spend all of that extra money. Wage pressure at the bottom of the pay scale could influence wages throughout the job market.

And Walmart's move will put pressure on other retailers and low-wage employers to raise pay, some analysts and economists said.

"Wage increase could be imminent for other companies," Cowen & Co. analyst Oliver Chen wrote in a report cited by MarketWatch.

Target’s stock dropped on the news of its rival's pay increase, with investors presumably thinking it, too, would have to give its workers more money.

A spokesperson for Target said that the company already pays above the federal minimum wage at all its U.S. stores and declined to provide more specifics on pay.

Past studies have shown that, when Walmart moves into a location, it pulls down wages for other companies. Now that Walmart is raising pay, the retailer might have the opposite effect, suggested Catherine Ruetschlin, a Senior Policy Analyst at Demos, a public policy and advocacy group.

“Walmart is the largest retailer in the world; its practices set a standard for the rest of the retail industry,” Ruetschlin said.

-- This post has been updated with a comment from Target.