News:

WASHINGTON -- In a move that could alter the minimum wage debate and improve the image of the world's largest retailer, Walmart announced it will raise the baseline wage of its current store employees to $10 per hour, bringing pay hikes to an estimated 500,000 workers.

The company said in an announcement on Thursday that it would raise its wage floor to $9 in April, followed by a second boost to $10 by next February.The decision follows similar moves by other major retailers such as Gap and IKEA, but the sheer size of Walmart sets the company apart. The Arkansas-based retailer is the largest private-sector employer in the U.S., with an estimated 1.4 million employees, and it is largely seen as a trend-setter in the retail industry.On a quarterly earnings call aligned with the announcement, Doug McMillon, the company's CEO, said raising wages would be good for both employees and customers.

"Overall, these are strategic investments in our people to reignite the sense of ownership they have in our stores," McMillon said. "As a result, we firmly believe that our customers will benefit from a better store experience, which can drive higher sales and returns for our shareholders over time.

"Right now we want to make sure everybody is crystal clear [on] how vital our store experience is for our future," McMillon added in a later CNBC interview. "Customers need to be served, and associates need to be happy and love their job."

According to a Walmart spokesman, the new wage floors will apply to current employees. New hires next year will be earning at least $9, but will be bumped up to at least $10 per hour after roughly six months of training.

In the CNBC interview, McMillon suggested that the improving U.S. economy -- with unemployment falling recently to 5.7 percent from a peak of 10 percent after the recession -- was also pressuring Walmart to raise wages.

"It's great to see the job market getting better, and the market works, so we're adjusting to that market," he said.

Walmart has long been saddled with a reputation as a low-wage employer, and its battles with labor unions -- in particular the United Food and Commercial Workers union -- stretch back decades. In recent years, labor groups have

organized high-profile worker strikes to coincide with the company's Black Friday shopping events, pillorying the retailer over its pay practices.

The across-the-board pay hikes should help rehabilitate that image. They will probably also help Walmart improve customer service in its stores. Over the past two years, bare shelves in Walmart supercenters have become a common sight. A report from a research firm last year traced the troubles in part to a lack of investment in the company's labor."We know that this wouldn't have happen[ed] without our work to stand together with hundreds of thousands of supporters to change the country's largest employer,” Emily Wells, an OUR Walmart member, said in a statement Thursday from the group. Wells said she's currently earning $9.50 per hour and will now see a raise, though she added that workers still face erratic scheduling.

A $10 wage would still leave many workers and their families below the poverty line, but it's well above the $7.25 federal minimum wage that still prevails in states without a higher one.

The fact that Walmart is raising its base wage could help lawmakers in Congress in their push to raise the federal wage floor, which hasn't been raised since 2009. Democrats have proposed hiking it to $10.10 per hour and tying it to an inflation index, but Republicans in both chambers have blocked the measure from moving forward.

The proposal is extremely popular among Americans in general, polling with broad approval that crosses party lines. The decision by Walmart could make Republicans look even more out-of-touch.

"It is encouraging that the nation’s largest employer, Walmart, has recognized what Republicans in Congress fail to acknowledge: that $7.25 is significantly too low an hourly wage for any American worker," said Drew Hammill, spokesman for House Minority Leader Nancy Pelosi (D-Calif.). "We hope that this move will help convince Republicans to stop blocking efforts to raise the wage."

With Congress gridlocked, many states have moved ahead with raises to their own minimum wages, with a slate of ballot measures passing in the November elections. For the first time ever, a majority of states now have a higher minimum wage than the federal level.

Topic: Oligopolistic market structure

Definitions:

Oligopoly: a market structure characterized by the dominance of a few firms, where the actions of one firm can and will impact the actions of another firm

Non-price competition: the use of factors other than price to impact a consumer’s purchasing decision; i.e. advertising

Diagrams:

A diagram showing the kinked demand curve of an oligopoly to demonstrate why the increase in minimum wage (marginal cost) won’t have any impact on the quantity or price of goods sold

A diagram showing the impact of a better consumer experience resulting from the changes in minimum wage levels (less elastic demand)

Analysis/Evaluation:

The raising of wage levels in Walmart allows them to offer more incentives to their workers, thereby motivating them to work harder. This will ideally create a situation in which the better customer experience leads to them purchasing from Walmart even if the prices are slightly higher, which will increase profits for Walmart.

Pros:

Walmart already has large market share (trend setter) people are less likely to be affected by the changes in price b/c they view new price as standard

Higher consumer life span, retention rate

Other firms have already begun to raise minimum wages risk is relatively low

Cons:

B/c Walmart is so big, with so many employees, if the raise in minimum wage levels is too great, they will end up losing a lot of money