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Walmart Lifts Minimum Wage, But Target Surges to New Highs

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Shares of Target (TGT - Free Report) hit a new 52-week high on Thursday, the same day that rival Walmart (WMT - Free Report) announced it would raise its starting hourly wages to $11 an hour. Walmart’s move comes amid a tightening U.S. labor market as competition for employees heats up.

Target bumped its minimum rate up to $11 in late September. The Minneapolis-based retailer, which is one of Walmart’s largest competitors, also pledged to increase its minimum hourly wage to $15 by the end of 2020. Prior to the 2017 increase, Target’s last substantial wage increase occurred in 2016, when the company boosted starting rates to $10 an hour.

Walmart’s move to match Target’s minimum wage comes in the wake of the U.S. unemployment rate hitting 4.1% in December. This rate, which remained constant during the last three months of 2017 according to the U.S. Bureau of Labor Statistics, marks the lowest unemployment rate within the last 10 years.

Furthermore, the unemployment rate for African-Americans reached 6.8% in December, the lowest point since the Bureau of Labor Statistics began tracking the figure in January 1972. On top of that, minimum wage increases took effect in 18 states earlier this year.

Walmart’s attempt to become a more attractive place for workers also coincides with its war against online retail juggernaut Amazon (AMZN - Free Report) .

But Walmart also cited the Republican tax overhaul—which is expected to greatly benefit retailers—as a major reason for the company’s ability to boost workers’ wages.

“As you know, the President and Congress have approved a lower business tax rate. Given these changes, we have an opportunity to accelerate a few pieces of our investment plan,” CEO Doug McMillon wrote in a statement on Thursday.

“We plan to continue investing in you, in our customers through lower prices, and in our future--especially in technology to help improve your jobs and the experience for our customers.”

Along with the boost to minimum wages, Walmart announced that it increased its paid leave policy in order to provide full-time hourly associates with 10 weeks of paid maternity leave and six weeks of paid parental leave. Walmart also announced that it would pay a one-time bonus up to $1,000, following in the footsteps AT&T (T - Free Report) and Comcast (CMCSA - Free Report) .

Walmart noted that these changes to its salary structure would add $300 million to annual expenses, while the bonuses are set to cost $400 million. Walmart’s average hourly wage for full-time U.S. store employees will increase to around $14.50 an hour from $13.85 an hour.

Target and Walmart both pay far above the federal minimum wage, which has remained at $7.25 an hour since 2009. Walmart’s jump to $11 an hour is set to begin in February for all Walmart U.S., Sam’s Club, Supply Chain, eCommerce, and Home Office hourly associates.

After the announcement, shares of Walmart experienced marginal gains and closed at just over $2 below their all-time high. Shares of Target surged over 4.60% to close at a new 52-week high of $74 per share.

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