Walmart and Home Depot are spending heaps of cash on pay raises because they can't afford to lose workers

• Home Depot is spending $1 billion to increase wages for hourly workers, the company said Tuesday.
• Walmart similarly announced last month that it would raise its minimum wage to $14 per hour.
• The moves come as retailers try to hoard workers so they are prepared when business picks up.

Walmart and Home Depot are ramping up spending in the battle for retail workers.

Home Depot announced Tuesday it will spend $1 billion to increase wages for hourly workers, bringing the company's starting wage to at least $15 an hour nationwide. The company also said it would pay commensurate raises to current employees.

The news follows a similar move by Walmart, which announced last month it would increase its minimum wage from to $14 per hour, up from $12, starting in March. The Bentonville, Arkansas-based company said that the average US associate would earn $17.50 hourly as a result of the wage floor hike.

Both Walmart and Home Depot said they hoped the raises would boost employee retention and recruitment.

The investments show how tight the labor market remains for retail workers, even amid warnings of a potential recession and a rush of layoff announcements among companies in tech, media, and other industries.

Retail workers are quitting at faster rates than the national average, and retail had the second most job openings of any industry as of December 2022.

"This $1 billion investment puts us favorably in the marketplace so we can recruit, retain, and attract the best leaders because they are the future for the company," said AnnMarie Campbell, Home Depot's executive vice president of US stores and international operations. Campbell said nearly 90% of Home Depot's leaders started on the sales floor and rose through the ranks.

Walmart CEO Doug McMillan — who began his Walmart career unloading trucks — said during his company's earnings call Tuesday: "We're constantly adjusting to put the right combination of wages, benefits, and education in place so that our people can build lifelong careers and achieve their full potential. You can start your career assembling bicycles and end up leading all of our US stores."

Home Depot's decision to include raises for current workers could help it fend off the criticism that new hires might earn the same or more than an existing employee — a payroll phenomenon known as "compression."

That's one of the concerns raised among the mixed reactions from Walmart employees, some of whom have told Insider they feel like the raises do not reward those who have stayed at the company for years. Others have said $14 isn't enough to cover living expenses.

"The cost of living is higher than this, and it still makes it near impossible to live alone with the ($14 per hour) pay," a Walmart employee from Kentucky previously told Insider.

With these steps, Walmart and Home Depot are the latest employers to join the list of retail companies practicing what economists call "labor hoarding," or hanging onto workers in spite of a potential downturn.

"Given how difficult it has been for companies to expand payrolls, there is a reluctance to let them go," KPMG senior economist Kenneth Kim previously told Insider.