The Walmart Experiment

A year ago, Walmart decided to begin a process to raise worker’s wages across the board. The experimental hypothesis: Would raising wages increase productivity? Well, in this case, it did. According to a recent article in The New York Times, Walmart has increased sales, and employees have taken more of an interest in their jobs and the place they work — and in customers — since last year’s pay raises went into effect.

It is an idea that flies in the face of the prevailing ethos on Wall Street and in many executive suites the last few decades. But there is sound economic theory behind the idea. “Efficiency wages” is the term that economists — who excel at giving complex names to obvious ideas — use for the notion that employers who pay workers more than the going rate will get more loyal, harder-working, more productive employees in return.

Investors, unfortunately and not so surprisingly, seem to lack confidence in this experiment. Oh well.

The Times writer, Neil Irwin, speculates that:

The question for Walmart is ultimately whether that short-run hit makes the company a stronger competitor in the long run. Will the investments turn out to be the beginning of a change in how Walmart and other giant companies think about their workers, or just a one-off experiment to be reversed when the next recession rolls around?

The future health of the United States economy, and the well-being of its workers, may well depend on the answer.

Walmart couples pay raises with education, particularly management education, and the creation of structures for employees to have input into store and company-level changes. As a result, employees have new perceptions of working at Walmart: no longer “the job I have until I get something else” but more often “a job that might lead to a career.” As one employee reflects:

“I didn’t used to think this would be something I would want to do, to work at Walmart,” said Garrett Watts, a 22-year-old newly promoted customer service manager at a store in Fayetteville. “There’s a stigma with it. It used to be, if you worked at a Walmart, it was the equivalent of a fast-food restaurant.”

Garrett Watts runs customer services for a Walmart in Fayettville, Ark. He was hired at $9 an hour and now makes $13. He is setting his sights on an assistant store manager job.Credit Melissa Lukenbaugh for The New York Times.

He had gone to college for two years, suspended his education and was working as a desk clerk at a hotel when he switched to Walmart this year, lured not by the starting wage but by what he had heard from a friend about the potential to rise within a giant company. He was soon promoted to department manager and runs customer services for the store. He was hired at $9 an hour and now makes $13.

“I wanted something that wasn’t a stopgap, but could be a real career,” Mr. Watts said. He is starting to set his sights on one of those $48,000-a-year assistant store manager jobs.

Clearly, investor metrics do not fully capture economic well-being.


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