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Will Wal-Mart Pay Raises Move the Needle on Wages?

Last week's announcement that the Bentonville, Arkansas company would spend more than $1 billion to raise pay for 500,000 of its employees – or 40 percent of its U.S. workforce – made serious waves in business and political circles.

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As the world's largest retailer and the nation's largest private employer, Wal-Mart has long served as a convenient punching bag for those decrying the growing prevalence of low-wage service industry jobs in the U.S.

So last week's announcement that the Bentonville, Arkansas company would spend more than $1 billion to raise pay for 500,000 of its employees – or 40 percent of its U.S. workforce – made serious waves in business and political circles.

Once implemented, hourly Wal-Mart workers will earn at least $9 per hour, with all current employees earning at least $10 per hour by February of 2016.

CEO Doug McMillon said the announcement reflects efforts to establish "a meritocracy where you can start somewhere and end up just as high as your hard work and your capacity will enable you to go," while the White House said the decision should prompt Congress to raise the federal $7.25 minimum wage.

Even longtime Wal-Mart critics lauded the move, with one analyst arguing it moves the retailer from "an unsatisfactory employer to a satisfactory one."

Economists, however, largely said the announcement reflects a tightening labor market rather than any widespread recognition that wages in the retail sector should be raised.

Some of Wal-Mart's competitors have raised wages in recent months, and in the aftermath of the nation's best year for hiring since 1999, there's concern that its workers could bolt for better paychecks elsewhere.

Retailers could also be looking to capitalize on rising consumer confidence – a result of increasing jobs and plummeting gas prices – by hiring more workers, while an increasing number of states and municipalities taken it upon themselves to eclipse the federal minimum wage.

Whatever the reason, pay for non-supervisor retail workers was up 3.2 percent in January compared to the same month last year, while non-supervisor pay in the hospitality and restaurant industry increased 3.5 over the same span, according to numbers from the U.S. Department of Labor.

A raise to $10 per hour, however, isn't likely to bolster those figures too much; that would still fall far below the sector's average non-supervisor wage of $14.65 per hour. The Wal-Mart announcement is also unlikely to dissuade its most ardent critics. A labor-backed group of Wal-Mart employees, for example, has long pushed for the company to pay its workers at least $15 per hour.

Meanwhile, although the retail and hospitality sectors have seen modest wage increases in the last year, wages on the whole have remained stagnant in the U.S.

Wal-Mart and other retailers have contributed to that pattern in recent years by amassing vast overseas sourcing systems that took advantage of lower foreign labor costs – at the expense of U.S. manufacturing, which pays considerably more to its workers than comparable workers in other industries.

In early 2013, Wal-Mart announced plans to spend $250 billion over the subsequent 10 years on products made in America, taking advantages of lower energy and transportation costs. But manufacturers have run into hurdles restarting production, and the company remains the nation's top importer.

Meanwhile, investors are wary that Wal-Mart's wage decision could reverberate throughout the industry. Although they concede rising wages could boost employee morale and reduce turnover, one observer predicted the company "is unlikely to see benefits that offset the higher expenses" in the short-term.