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Gap raises its minimum wage, Walmart waits for D.C.


While Washington D.C. bickers, the Gap (GPS) effectively raised its own minimum wage to $10 an hour. The company says the wage increase will impact 65,000 of its 90,000 employees in the U.S. and will be phased in over the next two years.

While nodding to Gap’s philanthropic history, company CEO Glenn Murphy told the Wall Street Journal that the move was based on strategy rather than charity. “There’s a view that technology is becoming so powerful, consumer habits are changing so what’s the point of a store? We see it differently. We are investing in our workforce because we think going forward stores and the service our workers provide will be ever more important for customers.”

In addition to the industry-wide struggles with slow mall traffic and bad weather, Gap visibly struggled with basic store maintenance over the holidays. Once synonymous with obsessive store upkeep (remember “the Gap Girls” on Saturday Night Live?) Gap became most notable for an all but random promotional model and display stands so disheveled it was all but impossible for customers to find the right sizes.

Walmart holds the line

Meanwhile at Walmart (WMT), the nation's largest private employer says it is "looking" at possibly supporting a hike in the federal minimum wage, but does not have any Gap-like plans to take matters into their own hands. “Elected officials can have the dialogue and ultimately decide what the right thing is to do about this,” said company spokesperson David Tovar. Asked whether increasing the minimum pay of its workers might help boost Walmart’s anemic bottom line, Tovar said, “that modeling is difficult to predict.”

As it happens, Walmart also also reported earnings this morning, disappointing Wall Street due in large part to weakness in revenues at its U.S. stores. Perhaps Mr. Tovar’s modeling needs to be revised. On the topic of overall growth Walmart CEO Doug McMillion says Walmart will stick to its plan of “focusing on customers and serving them how they want to be served.”

Customer expectations and the free market economy

Critics will say Walmart is weaseling out of the minimum wage debate because it saves the company millions of dollars a year. In the past Walmart has actually supported a hike in the minimum wage and isn’t shy about stepping into controversy, as it proved when it offered benefits for same sex partners nationwide late last year.

Ultimately charity and morality have nothing to do with what the Gap and Walmart pay. Both companies are dedicated to the bottom line. In Gap’s case the company thinks it will be able to get more capable employees if it pays higher wages. Customers expect a certain level of cleanliness from the Gap and CEO Murphy wants to get the company back on track in that regard.

Walmart customers care about price above all else. For better or worse Walmart thinks the company can maximize profit by having lower-skilled workers doing less complicated tasks than what Gap associates are asked to do.

The wage decisions by Gap and Walmart are a triumph of the free market taking over where Washington D.C. failed. The Gap wanted relatively dedicated employees so it decided to offer new hires more money. That’s the math of capitalism. Imperfect though it is, the free market is ultimately faster and more fair, whatever labor policies manage to escape D.C. gridlock.