This guest commentary was written by Benn Steil and Benjamin Della Rocca from the Council on Foreign Relations.
“Thanks to the Tax Cuts And Jobs Act, Walmart—America’s largest employer—is raising wages,” tweeted House Speaker Paul Ryan on January 11. Walmart CEO Doug McMillon was only too happy to embrace the narrative. “[T]he President and Congress have approved a lower business tax rate,” he told employees. “So, we’re pleased to tell you that we’re raising our starting wage to $11 an hour.”
As economists, we are admittedly prone to being cynical. But when a CEO whose compensation depends on happy shareholders says he’s giving more of their profits to employees just because those profits are about to get bigger, we go beyond cynicism. We go for the data.
As shown in the graphic above, this is the third wage hike that Walmart has announced in the past two years. Each one was preceded by a period of accelerating private retail wage growth—which is precisely what a cynical economist would expect. Firms raise wages when they need to attract and retain workers.
But that makes for crummy PR. Much better to share credit for rising wages with lawmakers who cut your taxes. Gives them motivation to keep the goodies coming.
It also helps bury the bigger story, which emerged by leak a few hours after the wage announcement: Walmart would be closing 63 Sam’s Club stores, affecting an estimated 9,400 employees.
Don’t you just hate cynical economists?
EDITOR'S NOTE
This is a Hedgeye Guest Contributor piece written by Benn Steil and reposted from the Council on Foreign Relations’ Geo-Graphics blog. Mr Steil is director of international economics at the Council on Foreign Relations and author of The Battle of Bretton Woods. It does not necessarily reflect the opinion of Hedgeye.
