Increased Wages Are Not Hurting Company Profits

Target Wages, Edison, USA - 16 Nov 2018
Julio Cortez / AP /

If the current labor shortage has proven nothing else, it’s that higher wages and corporate profits are not mutually exclusive. Even as Target and other high-profile companies raise their pay to attract and retain workers, the profits keep rolling in.

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Target just announced plans to hike starting hourly wages for certain store and supply-chain workers, aiming for a range of $15 to $24 per hour. It is among a growing list of corporate heavyweights to announce pay raises, including Walmart, Starbucks, Home Depot and Costco Wholesale. And all have posted robust profits in recent quarters, The Wall Street Journal reported.

U.S. employers as a whole spent about 4% more on labor costs during the 2021 fourth quarter vs. the same period the previous year, according to the Department of Labor. Wages should continue to tick higher over the next couple of years, economists say.

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Here’s a look at how some major employers have fared with wage hikes and profits:

  • Target, as of March 1, reported fiscal fourth-quarter earnings of $3.19 a share despite supply-chain pressures, CNBC reported. That was well above analyst estimates of $2.86 a share. The retailer said it expects to maintain high profits in coming quarters even as supply chain issues continue and labor costs rise higher.
  • Costco plans to raise its starting hourly wage for store workers to $17.50 this month, with starting wages for some hourly workers moving as high as $28.50. The warehouse club operator is due to report its fiscal 2022 second-quarter earnings on Thursday, March 3. Analysts polled by Zack’s expect Costco to post a full-year earnings gain of 14%, Nasdaq reported. Costco has beaten EPS estimates by an average of 15% in the trailing three quarters.
  • Last fall, Walmart said it would raise workers’ pay to at least $12 per hour. In February, the world’s biggest employer posted a fourth-quarter profit of $3.56 billion, or $1.28 a share, even as it faced paid-leave costs of more than $400 million due to the omicron variant, which was $300 million more than expected.
  • While Home Depot has reported a rise in labor expenses, it has also reported a rise in sales and earnings. The home improvement retailer’s year-over-year profit climbed more than 17% to $3.4 billion in the quarter ended Jan. 30.
  • Starbucks implemented an employee pay hike to $17 an hour last year. That raise, combined with two other recent wage increases, cost the coffee giant about $1 billion, the WSJ reported. Even so, Starbucks posted a fiscal first quarter profit of $816 million, up 31% from the previous year, thanks partly to price increases that boosted its margins.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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