A mid signs of a tightening labor market, Aetna Inc. plans to boost the incomes of its lowest-paid workers by as much as a third in a bid to draw top prospects and reduce turnover.

The move by the big health insurer highlights larger debates over the pace of the economic recovery and the compensation of people toward the bottom of the wage scale. Around 12% of Aetnas domestic work force will receive a raise to a floor of $16 an hour. Aetna, which also said it will cut health-care costs for many of the saine employees next year, follows Gap Inc., Starbucks Corp. and others in raising the lower limit on worker wages.

Aetna Chief Executive Mark T. Bertolini said the companys shift reflects changes in the insurance industry, which is increasingly selling coverage to individuals. Were preparing our company for a future where were going to have a much more consumer-oriented business, he said, and Aetna wants a better and more informed work force.

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Economists and policy makers have been on the lookout for signs of growth in workers pay, which has lagged behind other markers of improved economic activity, including rising employment and economic output. While many economists say wage inflation re-mains a remote concern, some point to scattered signs of pressure as an indicator that the recovery may be accelerating and spreading its benefits to a wider group.

We are getting closer and closer to the inflection point where we will see broad wage pressure, said Torsten Slok, chief international economist at Deutsche Bank. We are getting to the stage where companies can no longer find the right workers.

5,700

The number of workers who stand to get raises starting in April.

Aetnas decision also comes amid a broader conversation about the incomes of those to-ward the bottom of the wage scale. State and local governments around the country have moved to raise minimum wages, often generating pushback from business groups. Some companiesmostly in the heavily low-wage retail and restaurant industrieshave come under fire from labor groups over their pay. And the Securities and Exchange Commission is crafting a rule requiring publicly traded companies to disclose how much their CEOs make relative to their average worker.

Aetna said it appeared that none of the approximately 5,700 workers set to benefit, who include part-timers, are currently making the minimum wage in their localities. Starting this April, their hourly wage will be raised to $16, an 11% increase on average but an increase of as much as 33% for some workers.

Job ads from Aetna and its competitors, along with wage reports on job-hunting websites, suggest that low-level health-insurer workers in customer-service, billing claims-processing and similar positions, including both seasoned workers and entry-level employees are often paid $13 to $15 an hour.

Next year, the company will also let workers with household income below a certain threshold choose health coverage with lower out-of-pocket charges without paying more in monthly premiums, a shift it said could save a worker with a family as much as $4,000 a year. The company said that as many as 7,000 employees may be eligible. Like a growing number of its employer chents, Aetna offers only high-deductible plans to employees

Mr. Bertolini said Aetna expects to offer a benefits program to employer clients thats similar to the one its rolling out to its own workers.

The total cost to Aetna for both changes will be $14 million in 2015 and approximately $25.5 million next year, the company said. Aetna has projected operating revenue for 2015 of at least $62 billion, with operating profit of at least $2.4 billion. Overseas Aetna employees wont be affected nor will those working for third-party con-tractors that provide janitorial, security, cafeteria or other services.

Mr. Bertolini said Aetna hopes to reduce its turnover costs of around $120 million a year and improve the quality of job prospects and the engagement of workers who interact with consumers and health-care providers. He said he isnt certain the changes will pay for themselves in purely financial terms, but the cost is small relative to Aetnas size. Im willing to make the investment to see whether or not this happens, he said.

Mr. Bertolini, who said he had recently asked Aetna executives to read economist Thomas Pikettys book on wealth inequality, also framed the move in more idealistic terms: Its not just about paying people, its about the whole social compact, Mr. Bertolini said, adding, Why cant private industry step for-ward and make the innovative decisions on how to do this?

Mr. Bertolini said the timing was partly tied to the economic recovery, which, he suggested, will heighten the competition for employees now that there are more places for them to go.

So far, even as the economy and the labor market have improved, wages have grown slowly. On Friday, the Labor Department said unemployment fell to 5.6% in December from 5.8% in November, and employers added 252,000 jobs, capping the best year of job growth in nearly 15 years. By contrast, average hourly earnings fell slightly-likely reflecting seasonal part-time holiday hiringbringing 2014s increase to 1.7%.

Economists said Mr. Berto linis bet could pay off. Theres a very strong relationship between wages and turnover, said Lawrence Katz, a Harvard economist.

Questions

1. Is the decision managers at Aetna made to have a $16 an hour wage floor a programmed or nonprogrammed decision?

2. How did managers recognize the need to make this decision?