Wal-Mart pay hike: The free market works

Shoppers at a Walmart store in Los Angeles.
Jonathan Alcorn | Reuters
Shoppers at a Walmart store in Los Angeles.

Wal-Mart Stores' decision to boost pay for its entry-level employees by $1.75 over current federal minimum wage is a great example of how incomes should rise in America: via the free market.

Read MoreJim Cramer: Thumbs up for Wal-Mart pay hike

Political pressure may be part of the reason why Wal-Mart made this move to be sure. But this wasn't done just for PR reasons or to get the Democrats off its back. Wal-Mart is in business to make money, and clearly the company realized that it would be too hard to compete with other potential employers at the current pay.

There's a historical precedent for all of this. In 1914, Henry Ford famously boosted wages to $5 a day. The story goes that he did that out of the goodness of his heart and to make sure that all his employees could afford to buy the product they were making.

Read MoreMiddle class stagnation: What Obama plans to do

But the truth is that Ford had to boost wages to retain workers. At the time, Ford needed to hire 52,000 people per year just to maintain an average workforce of 14,000. So many people were walking off the line to get better jobs elsewhere, which meant Ford had to spend a lot of money to hire and train thousands of new workers per year. Finally, the company figured out how to stop the bleeding.

Wal-Mart is doing this clearly because more and more opportunities for lower skilled workers are opening up in America right now.

Read MoreAnd the happiest state in America is...

And that's the way it should be. Because if economic forces aren't the reason for wage increases, then you're building an economy that's too reliant on the shifting political winds, and you also run the chance of killing jobs outright.

Let's hope Wal-Mart's move is a true positive economic indicator and we'll start seeing more of in the coming months.

Commentary by Jake Novak, supervising producer of "Street Signs." Follow him on Twitter @jakejakeny.