News: How Rising Wages May Impact the Economy
With corporations steadily increasing their minimum wages, this could impact the economy.
Contributing Writer at Tally
March 25, 2022
Target has recently made waves with an announcement that it plans to raise its minimum starting wage from $15 per hour to a range of $15 to $24 per hour. The exact wage will depend on a few variables, including the job description, the market the employee works in and the local area's wages.
This wage increase is part of the retailer’s $300 million investment in wages and benefits. Another result of this investment is that employees who work at least an average of 25 hours per week will be eligible for a healthcare plan. This is down from the 30-hour average Target previously required.
Target isn’t the only company doing this, as other large corporations are working toward increasing their wages to make them more livable for employees.
While higher wages sound great, there are pros and cons. Keep reading to learn how these increased wages may impact the economy and smaller businesses.
What other corporations are increasing wages?
There’s no shortage of companies offering higher wages in the face of pressure from the public to offer livable pay.
McDonald’s increased its minimum wage to $9.90 per hour in July 2015 but still received pressure from labor advocates to increase its base wage to $15. It hasn’t gone that far yet, but the average hourly pay at McDonald’s is now $10.71 per hour for a regular crew member, while assistant managers average $13 hourly.
In July 2016, facing demands from its workforce, Starbucks increased its wages by up to 15% for its entry-level workers. On average, the coffee giant pays $11.81 per hour, and its wages nationwide range from $9.09 to $17.03, but a store manager can make about $20 per hour.
In January 2016, this retail giant boosted its starting wage to at least $10 per hour — a $1 increase. However, in 2020, Walmart increased its skilled frontline hourly workers — those working in the deli and bakery — from $11 per hour to $15 per hour.
It also announced most workers would see at least a $1-per-hour wage increase, and hourly team leads will start between $18 and $21 per hour but can go up to $30 per hour.
Costco has bumped its minimum pay multiple times in the past few years, pushing it to $14 per hour in 2018, $15 per hour in 2019, $16 per hour in February 2021 and $17 per hour in October 2021. On top of this, this massive retailer also pays time and a half on Sundays.
How will this impact the economy?
There are proponents of wage increases who have a lot of evidence supporting a pay hike. According to the Committee on Education & The Workforce Democrats, the positive impacts of a minimum wage increase to $12 per hour include:
No discernable negative impact on employment (i.e., it won’t kill jobs)
Significant increases in the gross domestic product (GDP)
Increased demand for goods and services
Reduced turnover and higher employment rates
Increased worker productivity
However, plenty of other experts believe there could be significant negative impacts from a minimum wage hike. These cons include:
Reduced hours at work
Forces small businesses to close
Increased prices of goods and services
Reduced work for low-skilled workers
Increased use of automation in place of human workers
How will small businesses be affected?
Small businesses are at the forefront of the wage debate. While large corporations generally have the resources for these pay increases, small businesses sometimes don’t.
However, it’s believed increased wages will increase discretionary income for current low-wage employees, increasing spending. A portion of this increased spending will go toward small businesses, potentially offsetting the wage hikes.
This is, however, assuming the federal minimum wage increases, forcing small businesses to increase their wages. During these voluntary increases, mom-and-pop stores may not believe they can afford to match large corporations’ pay hikes, leading to high turnover, low employment rates and low employee morale at these small businesses.
This could drive consumers to the larger corporations, potentially leaving the mom-and-pop stores no choice but to close.
Time will tell how wage hikes will impact the economy
While there are experts on both sides of the fence in this argument, none know what wage increases will do to the economy. They’re simply making educated guesses based on surveys and past occurrences. What will really tell us how these wage increases impact the economy is time.
As time passes and more companies jump on the wage-hike bandwagon, we’ll see the real impact.