What Happens After A Mega Corporation Raises Its Workers' Wages

Earlier today, McDonalds announced that it would become the latest company to raise hourly pay for 90,000 workers by more than 10% and add benefits such as paid vacation for its restaurant workers. Specifically, starting in July, MCD will pay at least $1 per hour more than the local legal minimum wage for employees at the roughly 1,500 restaurants it owns in the U.S. The increase will lift the average hourly rate for its U.S. restaurant employees to $9.90 on July 1 and more than $10 by the end of 2016, from $9.01 currently. Finally, McDonald’s also will enable workers after a year of employment to accrue up to five days of paid time-off annually.

With this announcement, McDonalds joins the following companies which have likewise raised minimum wages in recent months:

• WalMart
• Aetna
• Gap
• Ikea
• Target
• TJ Maxx

Surely this is great news for the workers of these above companies, as some of the massive wealth accrued by corporate shareholders may be finally trickling down to the lowliest of employees, right? As it turns out, the answer is far from clear.

As the following WSJ story released overnight, here is what happens when mega-corporations such as WalMart and McDonalds, whose specialty are commoditized products and services and have razor thin margins, yet which try to give an appearance of doing the right thing, raise minimum wages. They start flexing their muscles, and in the process trample all over the companies that comprise their own cost overhead: their suppliers and vendors.

Take the case of WalMart: the world's biggest retailer "is increasing the pressure on suppliers to cut the cost of their products, in an effort to regain the mantle of low-price leader and turn around its sluggish U.S. sales."

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