There was a lot of news out last week, but perhaps the biggest news came from Wal-Mart when they lifted the wages for starting employees and other management levels.
Entry-level employees will start out at $9.00 an hour. Next year, employees with six months of skill-based training will see their wages move to $10.00, which is monumental for a company with 1.3 million employees. Immediately, the political debate was joined on whether the left was somehow winning and if it was a smart business decision.
I say it was more about business as workers have been quitting retail jobs in droves, underscored by the 21% leap in December versus the overall businesses without retail. All this time the experts were looking for wages to begin moving higher in areas of special skills. However, retailers are finding it difficult to find the right skills. Keep in mind that the right skills are what used to be commonplace work requirements.
According to the Empire State Manufacturing Survey of April 2014, employers had the most difficulty-finding workers proficient in:
- Advanced Math
- Punctuality
- Basic Math
| Basic Math Workers Quitting JobsDec 2013- Dec 2014 | |
| Overall+11% | Retail+21% |
So, is being a more generous employer important for shareholders? If you take the most loved of discount retailers (Costco) versus the most unloved (Wal-Mart), the answer would seem to be yes, as the former is up more than 150% in the last few years versus 55% for the latter. In fact, you have to go back to 1990 to find them equal in return 1400%.
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WMT vs. COST
Of course, there are other factors and some would say Sam's Club is a more apples to apples comparison with Costco. However, the news will impact all of the retail companies, and perhaps fast food companies as well. But from what I can see, this is a business decision based on the ability to hike wages; (the company posted its best same-store sales in years), and the need to find better workers, even in the would-be lower skills area. Maybe at $9 an hour, the $10-an-hour people will come to work on time, be courteous, and see the upside to being on the ladder of success.
In the meantime, the question whether this moves the needle for the Fed remains to be seen. However, I don't think it's enough. The increases probably don't trigger the textbook inflation, but part and parcel will make it more difficult for the Fed to hold pat. I can't wait for the Fed to begin raising rates, it will be an exciting time, and for those that sell on the news it will help create opportunities as market value makes it harder to find value.
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