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Gap Ditches the Minimum Wage, Gives Raises to 65,000 Workers

An employee folds clothes at a Gap store in San Francisco on Feb. 28, 2013

Photograph by David Paul Morris/Bloomberg

An employee folds clothes at a Gap store in San Francisco on Feb. 28, 2013

President Obama has called for a new federal minimum wage of $10.10 an hour. Among those who support the increase: a majority of Americans, seven Nobel prize-winning economists, and Gap (GPS).

The retailer, with about 65,000 minimum-wage workers, joined companies such as Costco (COST), Whole Foods (WFM), and In-N-Out Burger in agreeing to raise the bottom of its hourly pay scale above the $7.25 federal minimum. Gap Chief Executive Glenn Murphy announced on Thursday that the company will set its minimum hourly rate for U.S. employees at $9 this year and $10 in 2015.

In a statement, Murphy said the company made the decision after months of consideration and pointedly avoided any discussion of the political or moral arguments about economic inequality that often animate the debate. “To us this is not a political issue,” Murphy said. “Our decision to invest in our frontline employees will directly support our business, and is one that we expect to deliver a return many times over.”

The day brought other news about the minimum wage, too. Wal-Mart (WMT) said it’s considering supporting an increase but noted that it hasn’t yet conclusively determined the impact on its business. The company has 1.3 million U.S. employees, making it the biggest private employer in the country.

An estimate released yesterday by the nonpartisan Congressional Budget Office, meanwhile, projected losses of about 500,000 jobs under a $10.10 minimum wage—along with a boost in income that would likely lift 900,000 people out of poverty.

With all these companies reconsidering low-end wages, it’s time to talk to McDonald’s (MCD), where U.S. employees at the bottom of the pay scale have received an estimated $1.2 billion a year in public assistance.

Berfield is a writer for Bloomberg Businessweek in New York. Follow her on Twitter @susanberfield.

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