Target (NYSE:TGT) made news earlier this week by making public plans to increase its minimum hourly wage for all employees to $11 in October. The chain also pledged to increase wages to a $15-per-hour minimum by 2020.
The company said in a press release that a "significant investment in its team will allow Target to continue to recruit and retain strong team members." It comes at a time when unemployment sits near historic lows and the idea of a $15-an-hour minimum wage has become a huge topic of national debate.
Target's move follows its previous wage hike to a $10 an hour minimum in 2016. It also follows efforts from its chief rival, Wal-Mart (NYSE:WMT), to raise wages. In February 2016 the company pledged to pay any employees hired before Jan. 1, 2016 at $10 an hour and that any workers hired after that would receive at least $9 an hour, with their rate increasing to at least $10 upon completion of a training program.
It's not just about being generous
Only two states -- Massachusetts and Washington -- have $11-an-hour minimum wages. Thirty-one states and the District of Columbia, however, have a minimum wage that exceeds the federal standard of $7.25.
In his remarks in the press release Target's CEO Brian Cornell framed the move as being about making life better for his chain's workers.
Target has always offered market competitive wages to our team members. With this latest commitment, we'll be providing even more meaningful pay, as well as the tools, training and support our team needs to build their skills, develop professionally and offer the service and expertise that set Target apart.
That's, of course, a piece of it, but the reality is that changing market conditions dictate the increase. With unemployment standing at 4.4% in August, near historic lows, the reality is Target needs to pay more to attract workers.
What do hourly workers make?
An employee who makes $11 an hour for a 40-hour week would earn $22,800 a year. That's less than the average annual wages for cashiers ($27,701) and warehouse associates ($40,784), according to GlassDoor's most-recent Local Pay Reports. Of course, those reports offer the average of all workers in those positions, not the minimum hourly starting wage.
Target's starting pay will also be less than the $14.21 an hour the average Costco cashier makes and less than the $12.42 an Amazon fulfillment associate earns per hour, according to GlassDoor salary reviews. That data is based on 158 Costco employees reporting their earnings to the jobs data website and 683 Amazon warehouse workers doing the same.
The new rate, however, is very competitive in other areas of the market. Starting workers at $11 an hour does put Target well ahead of the $8.41 to $8.61 an hour the average McDonald's crew member or cashier makes. Target's starting salary will also be more than the average Starbucks barista makes ($9.55 to $9.57), and more than Sears ($8.37 to $8.54) and J.C. Penney ($9.04 to $9.07) associates and cashiers, according to what was reported to GlassDoor.
What does this mean for Target?
In the retail world, especially when it comes to entry-level positions, small differences in salary can be the difference between someone taking a job or electing to go elsewhere. Competitive pay can also help a company retain employees, lowering its long-term training costs while also improving customer service.
Heading into a time when it and many of its rivals are hiring for the holidays, Target has given itself a leg up on the competition. By paying more than the competition, the retailer should have an easier time hiring and holding onto the employees it needs. That should improve the in-store experience for customers and help the company meet its Q4 goals. The company's long-range wage increases will help it build an ongoing foundation of well-trained, experienced employees.
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.