Oh, how things can change in a couple of years! In September 2021, I wrote a piece drawing investors’ attention to a story that was in danger of getting lost on a jobs report day: Walmart (WMT) revealed at that time that they were raising the rate of pay for hourly workers. That, I said, was significant because Walmart is the nation’s largest single employer, and their feeling the need to raise wages signaled pressure in the labor market that could, and probably would, have an inflationary effect.
Prices were already rising at that point, which in part prompted the move by WMT, but wage increases are often the start of a vicious cycle in an inflationary environment, and that announcement and similar moves by others that followed did indeed contribute to inflation that jumped to around nine percent by the end of that year. That led to more and bigger rate hikes designed to slow the economy that, so far, haven’t really done that, but still could, given the usual time lag between Fed policy changes and their impact in the real world.
So, fast forward to today, when you see the headline “Walmart Cuts Starting Pay For Some Entry-level Store Workers,” and one might assume that that is good news (at least for anyone not thinking of working at Walmart), given concerns about inflation and its impact on the stock market. In some ways it is good news. After all, when it comes to the labor market, others follow where WMT leads, as we saw back in 2021. However, this move seems to be more about adjusting to changing consumer behavior than it is about conditions in the labor market or the overall economy.
In 2021, the thought was that some of the changes in the way people shopped that had been forced on them by the pandemic were here to stay. There was a rapid acceleration in online ordering at the time, with things like personal shoppers and curbside pickup gaining ground. Walmart’s pay raises were about trying to fill jobs in those areas. That made sense in the circumstances, but the feeling was that once customers had tasted the convenience of those programs, they wouldn’t go back to walking around stores and standing in line.
That, it seems, hasn’t been true.
Walmart’s cut in starting pay is in those areas only, and in fact it is being accompanied by a review of wage bands that will actually raise wages for around 50,000 employees according to the company’s spokesperson, Anne Hatfield. Overall, a dollar cut in starting pay in a field that is shrinking in importance is more than offset by pay hikes elsewhere. The headlines around this move say “pay cuts” but the reality is anything but.
Even though the unemployment rate ticked up last month, it is still below 4%, where it has been since January of 2022. That is well below the long-term average and almost certainly constitutes what economists view as “full employment.” In other words, workers still have significant power in wage negotiations and upward pressure on wages remains, even as the economy begins to slow in response to interest rates climbing from zero to over five percent in just a year and a half.
The danger here is that the full impact of those rate hikes starts to be felt in terms of an economic slowdown while inflationary pressure from wages remains. That could lead to a situation where inflation stays above the Fed’s target rate, even as the economy contracts, the dreaded stagflation that caused so much damage in the 1970s. We aren’t there yet, of course, and there could still be a fairy tale ending, with the economy slowing just enough to temper inflation but not so much as to push wages lower, and thereby lower everyone’s standard of living. If we do, though, it won’t be because Walmart trimmed starting wages for new hires in one part of their massive workforce.
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