A persistent labor shortage threatens to upend holiday hiring for the important December sales quarter, leading Amazon.com Inc., Walmart Inc. and Target Corp. to roll out more extensive employee benefits in the rush to compete for workers.

Average hourly pay for U.S. retail employees rose 4.4% year over year in August, but retail pay still lags that of other sectors, according to the latest figures from the U.S. Labor Department. Competitive pressures pushed Walmart to raise its starting pay over the past year to better compete for workers with Amazon and Target, but now the rivals are also jockeying over more expansive education and other benefits.

Whether the new benefits are enough to attract more workers remains to be seen, however, given the mix of factors keeping potential employees home, including ongoing concerns about health and childcare challenges during the pandemic, retail and policy experts say. If the hiring efforts are not successful, it could create a headwind for retail sales.

The U.S. Labor Department in its most recent employment data release found that as of July, there were 10.9 million open positions across industries, including 1.1 million in retail. Comparatively, in July 2020 there were 781,000 retail job openings. Updated figures for August will not be available until next month. Walmart, Amazon and Target did not respond to inquiries on how seasonal hiring is faring this year versus a more typical year before the pandemic.

"It's this unprecedented time where there are thousands of jobs, and there's people available to do the work but they are choosing not to do the work for their personal reasons," said Shannon Warner, partner in the consumer practice of Kearney, a global strategy and management consulting firm.

Enhanced benefits

Last year, retailers offered an array of bonuses and hazard pay to entice employees to work in warehouses and distribution centers. This year, they are putting more emphasis on enhanced pay and benefits.

Amazon announced Sept. 14 that it plans to hire 125,000 employees for its U.S. warehouse operations, including roles in fulfillment and transportation that offer an average starting wage of more than $18 per hour and up to $22.50 per hour in some locations. The e-commerce company also offers employees health, vision and dental insurance, 401(k) plans with a 50% company match, as well as up to 20 weeks of paid parental leave.

Walmart, Amazon's brick-and-mortar rival, said Sept. 1 that it plans to hire 20,000 new supply chain employees across more than 250 Walmart and Sam's Club distribution and fulfillment centers and transportation offices, with an average wage of $20.37 per hour. The company's benefits package includes paid time off, a fitness center membership benefit, free counseling as well as parental leave.

The companies are also offering more generous education benefits. For example, Amazon in September announced plans to cover the cost of college bachelor's degrees . The benefit is available to more than 750,000 U.S. hourly employees who have worked for the company for at least 90 days of employment.

Both Target and Walmart rolled out similar programs over the summer. Target in early August said it would offer a new debt-free education assistance benefit program to more than 340,000 full-time and part-time workers, providing access to free undergraduate and associates degrees. Walmart in late July said it would pay 100% of college tuition and books for associates through its "Live Better U" education program.

Offering education benefits to workers is not new, but it is a "very clever way" to make some entry-level jobs more appealing and increase retention, said Kearney's Warner.

"There's a whole lot fewer hurdles for employees to get through in order to have access to those benefits," Warner said.

The companies will be competing against retailers that are also offering perks including cash awards to get the COVID-19 vaccine, additional paid time off to get and recover from the shot, and free meals for employees, said Ed Egee, vice president of government relations and workforce development at the National Retail Federation.

Some retailers are even dropping drug tests to screen for marijuana usage because of the length of time it takes to get results back — seven to 10 days — and the fact that most results come back negative, Egee said.

"That worker might have been scooped up by someone else in the meantime," Egee said.

Higher pay

Others are turning to pay hikes in a bid to woo workers back to the retail trade, for which employment has fallen by 285,000 since February 2020, according to the Labor Department. Average hourly earnings across sectors rose to $30.73 in August, but retail workers earned an average of $22.12 per hour.

Walmart's average hourly wage for its U.S. store workers came to $16.40 after the company raised pay for 1.2 million U.S. employees over the past year.

The Arkansas-based retailer in September raised wages for associates in areas such as food, consumables and general merchandise work groups to between $12 and $17 per hour. That marked a third round of hourly wage increases for the company since the pandemic began: It previously raised pay for its stock and digital associates rose to between $13 and $19 per hour in February; and deli, bakery and auto care center workers got a bump to at least $15 per hour in September 2020.

Walmart this month said it would raise its overall starting wage to $12 per hour, up from $11 hourly wage floor established in 2018, and it committed to raising pay for over half of its 1.6 million U.S. workers by at least $1 an hour. The company has historically lagged in pay behind competitors Amazon and Target, both of which already offer a $15-per-hour minimum wage. But the labor shortage forced Walmart to step up with wage hikes to stay competitive, said Michael Baker, managing director with D.A. Davidson.

Worker challenges

Some employees will return to work now that federal unemployment benefits expired as of Labor Day, but companies should expect a tight labor market amid the continuing pandemic, said Patricia Campos-Medina, executive director for the Worker Institute at Cornell University.

"If you don't have healthcare insurance or your spouse doesn't have healthcare insurance, the impact on your family [from a COVID-19 illness] could be devastating," Campos-Medina said.

Part of the difficulty is due to workers moving to more stable, higher-paying roles such as sales, said Sheryl Kingstone, head of customer experience and commerce at 451 Research, a unit of S&P Global Market Intelligence. Additionally, some women, who account for a large chunk of lower-paying retail jobs, are forgoing retail work due to childcare challenges exacerbated by the pandemic, Kingstone said.

"A lot of employees have now realized that there are other opportunities out there," Kingstone said. "The other respondents are just sitting on the sidelines trying to figure out what they want to do with their career."