The Real Meaning of $9 an Hour
Walmart’s decision on Feb. 19 to raise its base wage to $9 an hour, $1.75 higher than the federal minimum, has been heralded as a major victory for American labor. Wall Street punished the world’s largest retailer for the pay hike–which will cost the firm $1 billion this fiscal year–by driving down its shares. But labor economists and liberals lauded the raise as a new wave of “Fordism,” referring to Henry Ford’s historic 1914 decision to double wages in his factories, which not only boosted productivity and reduced turnover but also created more customers for his company’s products.
Walmart’s move is seen by some as a sea change for the retail sector. “Walmart sets the standard, and the fact that they’ve kept wages so low has made it hard for others to raise them,” explains Isabel Sawhill, co-director of the Center on Children and Families at the Brookings Institution. Now it’s likely that pay for other low-income workers will rise, not just in retail but also in other sectors like home health care, child care and fast food, all of which compete for the same workers as Walmart.
The question is, how much will it matter? Labor’s share of the economic pie has been decreasing since the 1970s, thanks to globalization, which has outsourced low-wage jobs (and technology, which has destroyed them outright); the shrinking of unions; and pressure from Wall Street to reduce costs, which turbocharged all these trends. The corporate share, meanwhile, is at record highs. That means Walmart’s move to $9 an hour won’t make much difference in macroeconomic terms. The $1 billion it will effectively put in the hands of 40% of its 1.3 million U.S. employees is a tiny fraction of our $16 trillion economy. Damon Silvers, the policy director of the AFL-CIO, estimates that even if all low-wage employers followed Walmart’s lead, it wouldn’t move the needle on labor’s share by even a single percentage point. “That’s not to say that the Walmart workers’ victory isn’t an important step forward for low-wage workers,” he says. “But it also shows what a small piece of the pie they’ve been getting.”