(Reuters) - Wal-Mart Stores Inc WMT.N said Wednesday that more than 1.2 million employees would get a raise in 2016, and the retailer will allow paid days off to be carried over into the next year as it aims to retain workers amid a tight U.S. labor market.

The Wal-Mart company logo is seen outside a Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013. REUTERS/Rick Wilking

The company announced plans for the raise last year as part of a two-step, $2.7 billion investment in wages, benefits and training, although it had not disclosed details of the second phase in which it is bumping its mininum pay to $10 an hour, following an increase to $9 in April.

In a statement the company said all employees hired before Jan. 1 would be paid at least $10 an hour, with entry-level hires after that date eligible for that wage after completing a training program.

The latest raise would increase the average full-time hourly wage at Wal-Mart to $13.38 from $12.96 and average part-time wage to $10.58 from $10. The federal minimum is $7.25.

The world’s largest retailer also announced that workers would, for the first time, be able to carry over paid days off, with full-time employees transferring up to 80 hours into following year. The move highlights how Wal-Mart and other employers are responding to a tight labor market with the U.S. unemployment rate at a 7-1/2 year low of 5 percent.

Wal-Mart has said its investment in wages is depressing profits; labor costs were a main factor behind an earnings warning in October. But it believes better pay is leading to improved service and boosting U.S. sales.

“We’re seeing strong increases in both customer experience and associate engagement scores,” Judith McKenna, chief operating officer for Wal-Mart’s U.S. operations, said in the statement.

Still, the moves fall short of the demands of labor groups, which have called on companies to pay a “living wage” of $15 an hour.

Jessica Levin, a spokeswoman for a the union-backed group Making Change at Walmart, said she was skeptical that employees would see much benefit.

She cited reports from workers who saw their hours cut after the initial wage hike last year or who received a smaller annual raise than they might have due to changes in the calculation of yearly performance-based hikes.

Levin noted that the announcement came just a few days after Wal-Mart said it was closing 269 stores, including 154 in the United States, eliminating some 16,000 jobs at closed stores globally. Wal-Mart said it would try to transfer many workers to nearby stores.

EMPLOYEE RATING OF COMPANY INCHES UP

Wal-Mart said it was also raising the minimum rates for hourly pay bands, which differ based on job type, but would leave the maximum rate unchanged following a bump last year. To compensate workers at or above the top pay band rates, it will provide a lump payment equal to 2 percent of annual pay.

Scott Dobroski, a career trends analyst at jobs website operator Glassdoor, said the raise and paid time off changes should help Wal-Mart attract employees.

He noted that Wal-Mart’s employee rating, as measured by input from workers to the Glassdoor site, had improved to 3.1 in the final quarter of 2015 from 2.9 in the last quarter of 2014 before its wage hike. The average for all companies is 3.2 on its 1 to 5 scale.