Wal-Mart’s Giving Raises. How That Shows the Market Works.

Wal-Mart is giving employees a raise.

Wal-Mart announced today that it would spend $1 billion to raise the wages for 500,000 workers. Current employees will now be paid at least $9 per hour by April of this year and $10 per hour by February 2016.

Wal-Mart’s decision to lift its base hourly wage is an indication that the labor market is recovering strongly. Since Wal-Mart is a participant in labor markets all over the country, the company’s decision is a good indication that the economy is doing better nationally. Moreover, the higher wages are apparently necessary for Wal-Mart to attract and retain valuable personnel.

Wal-Mart’s decision is also a reminder of the power of free markets.

The government did not force Wal-Mart’s move, nor were the company’s owners acting out of generosity. Rather, the market forced them to raise wages in order to compete for workers, so they did.

Competition helps everyone get the best deal: consumers flock to Wal-Mart because it offers products at competitive prices; investors buy Wal-Mart stock because it earns competitive profits; and workers will apply for jobs at Wal-Mart because it pays competitive wages.