Costco Pays More, Because It Can

5:44 PM, Jan 29, 2014   |    comments
President Barack Obama speaks about minimum wage at a Maryland Costco, Jan. 29, 2014.
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Jayne O'Donnell and Alicia McElhaney, USA TODAY

President Obama chose a Costco warehouse store in Maryland today to push for a big hike in the federal minimum wage, choosing Costco, the White House says, because the company is "acting on its own to pay its workers a fair wage."

Labor union officials and backers agree, saying other retailers. such as Walmart, could learn from the way Costco treats its workers and and the results it gets.

But others say the Costco membership stores have such a different business model -- and customer base -- that the company can't be compared to other retail chains.

Costco "has half the number of employees per square foot (of Walmart), is a much smaller company, its stores are only in affluent areas and people are buying in bulk," says Richard Berman, who runs a business advocacy group opposed to a minimum wage increase. "It's like saying, 'Why does Microsoft pay more than Starbucks?'"

Costco officials did not respond to requests for comment, but, according to Bloomberg BusinessWeek, its employees make an average wage of about $21 an hour, Costco CEO Craig Jelinekhas been an outspoken proponent of a minimum wage increase.

The federal minimum wage is now $7.25 an hour, although many states have a higher minimum. Walmart says its average hourly fulltime wage is $12.81, although labor groups say the average wage overall, including parttime, is less than $9 an hour.

"People making Walmart wages can't afford Walmart products," says Occidental College politics professor Peter Dreier,chair of the urban and environmental department. "On the other hand, what Costco uses is the multiplier effect or the ripple effect - if you raise wages by some percentage, that ripples in the whole economy.

Jonelle Gilden a Chicago training consultant, is impressed by the way Costco treats both employees and customers.

"I knew Costco employees were paid more and it shows in their attitude and customer service," says Gilden. "Costco's business model obviously works and their employees are loyal."

Costco has an annual turnover of less than 6%, low for a retailer, according to Dreier. He says this high retention cuts costs and lets Costco to pay higher hourly wages.

But Berman says that raising the minimum wage will accelerate trends towards automation in stores and restaurants, says Berman, who says his group's funders include retail and restaurant companies. He cites the increasing use of iPads for ordering in restaurants and self-checkout in grocery stores.

Brian Gansmann, who owns a food development company in Denver, applauds Costco's decision to pay its workers more, but doesn't think higher wages should be mandated.

"Costco has relied on the simple laws of economics to get a leg up on their competition," says Gansmann. "The more that we business owners willingly pay an employee, data proves that this higher-paid team member is going to stay with our organization longer."

USA Today

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