Walmart and its peers are putting a little more money in the pockets of some of their biggest customers: their own employees.
Since the start of this year, 14 states and several cities have increased their minimum wages, handing at least 2.8 million workers pay increases that could be worth thousands of dollars a year.
Some companies, like Walmart, didn’t wait for statutory orders. The retail giant is set to hand out $1.5 billion in pay raises this month.
One question is how much will trickle back to Walmart itself and the other companies handing out more cash to their low-wage workforce. Economists and analysts say the answer isn’t entirely clear. Some investors are betting that more spending power at the low end of the economy could be good news for discount retailers, whose shares are outperforming a bearish stock market.
“The dollar stores, Walmart, Target, they benefit more directly and dramatically,” said Harley Shaiken, a professor at University of California, Berkeley, who studies labor issues and supports minimum-wage increases. “At the low end of the wage market, people are scraping by. They get more money, they spend it.”
After stumbling initially on news of the pay raises, Walmart has been the second-biggest gainer on a plunging Dow Jones industrial average this year, rising 7.5 percent.
Discounters are well-placed to attract some of the extra money in American pockets.
While wage growth has generally been lackluster since the financial crisis, in the five months through January hourly earnings rose at an average annual pace of about 2.5 percent. That’s the best run since 2009, and Labor Secretary Thomas Perez says minimum-wage rises are helping to drive it.
The low-cost stores also stand to benefit if the economy slows and middle-income shoppers start hunting around for better deals.
Other businesses beyond retail are also expecting to see more spending. Rent-A-Center leases furniture and appliances to consumers who can’t get credit, and chief financial officer Guy Constant said the company should be a net winner from rising wages, despite the added costs.
“Our customers are those minimum-wage earners or close to minimum-wage earners that are all going to be seeing salary increases which will allow them to shop in our stores,” Constant said on an October conference call with analysts. In some regions “we will have to pay a little bit more, but … rising minimum wages is a good thing for our business, not a bad thing.”
