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Walmart's big wage bump shows the economy is improving

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  1. Walmart announced Thursday that it is bumping its entry-level wage to $9 in April. Current associates will also all be earning a minimum of $10 by February 2016.
  2. The company is framing this as a way of doing the right thing and helping its workers succeed within the company.
  3. It's also a clear sign that the economy is improving — the nation's largest private employer is raising wages amid other strong signs of labor market improvement.

About 500,000 workers will benefit this year

Walmart's quarterly earnings, which it announced on Thursday, were unremarkable. But the mammoth retailer also announced that it's raising its entry-level wage to $9 per hour (around $18,700 annually, assuming 40-hour weeks) in April. In addition, by February 1, 2016, current associates will all get a minimum of $10 per hour ($20,800 annually). The company is also introducing higher wages for some department managers, bumping their pay from $13 to $15 per hour (or $31,200 in a year, again assuming 40-hour weeks).

The company has said in the past that only around 6,000 of its roughly 1.3 million workers make the federal minimum wage of $7.25. But that's partly because 29 states and the District of Columbia have minimum wages above the $7.25 mark. Altogether, many more employees will benefit from this wage hike: the company says around 500,000 workers will benefit from this year's pay raises.

The company is framing it as a way of showing its employees that they are valued. In a letter to workers, CEO Doug McMillon said the change in pay policy is one way the company is shifting to do right by its employees.

"We're always trying to do the right thing and build a stronger business. We frequently get it right but sometimes we don't. When we don't, we adjust," MacMillan wrote, pointing to a rough economy and recent changes in how customers shop.

Paying higher wages can be good for the bottom line

But of course, no company will undertake such a large-scale wage boost out of pure altruism. Raising the pay of lower-wage workers can have sizable benefits for a company, resulting in higher productivity, less absenteeism, and lower employee turnover. The Peterson Institute for International Economics published a thorough rundown of the evidence earlier this year, from economists Justin Wolfers and Jan Zilinsky.

The pay bump also could help boost the store's image after years of high-profile protests for higher pay, including last year's Black Friday demonstrations demanding a $15 hourly wage.

The labor market is improving

Walmart is the US's largest private employer, accounting for nearly 1 percent of the nation's non-farm workers, so it means something big when that company decides to boost its wages. It's another clear sign of labor market improvement.

After all, one of the closest-watched indicators in recent monthly job reports has been hourly wages. If those tick up, it's a sign that the labor market is tightening, and that employers have to raise wages to hold onto or attract the talent they want. Last month, the jobs report showed that pay is already increasing, with average hourly wages jumping by 12 cents, the biggest jump in nearly eight years.

Walmart's announcement signals that the company wants to keep attracting good talent and doesn't want to lose its workers to competitors — which in turn signals that there's increased competition to get good workers. This also squares with other recent, encouraging jobs data — in December, US employers had the most job openings since 2001 and the highest level of hires in seven years, Bloomberg reported. The number of workers voluntarily quitting their jobs also jumped, a sign that people are either leaving their jobs for other opportunities or are confident enough to quit before they have a new job lined up.