As we come out of a recession, increased attention has been put upon decreasing the unemployment rate and making companies more profitable – but what about people who already have jobs, but are underpaid? With talk in the United States of raising the minimum wage, salaries have become a prevalent topic in today’s political and economic discussions. Though raising the minimum wage is debateable, there are real benefits for companies which pay more, with numerous companies, including Costco, being shining examples of what an increase can do.
In the United States, the federal minimum wage is $7.25 an hour. If you’re a clerk at a supermarket, one would expect your wage to be around $10 an hour, around the average wage for the industry. In Costco, however, the wage for clerks is now set at $22.87 an hour. This wage is much more gracious than other businesses, with competing stores offering around that $10.00 mark. Costco manages to make that wage work, and has actually increased profit in line with wage increases. Though the wages will have numerous benefits for the employees, as they are able to live better lives and worry less about every paycheck, how does it help the company, and should all companies apply this?
Two of the most obvious benefits of improving employees’ wages are an overall increase in morale and a reduced occurrence of theft. Employees feel significantly more valued when working for more money, and as one study by the National Bureau of Economic Research shows, are also more productive, which often leads to more profit for the company. This increase in productivity and morale also leads to a company to need less workers, saving the company money. When employees are paid more, their lives are more comfortable, and their ability to afford products drastically increases, especially when working for wages such as Costco’s. With this increased wage, employees are significantly less likely to steal, decreasing the replacement rate of stolen products. For many companies which hire unskilled employees, theft is a common problem, with the benefit of Costco being clear when the theft rate of Costco, at 0.2 percent, significantly lower than the industry average of 1.42 percent.
If all companies do increase their wages, will there be benefits across the board? For employees, every one of them will go through a clear increase in their quality of life, as they have more available disposable income. This will most likely translate into benefits for the economy, but will companies be able to survive through this practice? Raising wages in other fields, where wages aren’t near the minimum, probably will not be a smart idea, with many of these jobs already paying well. The positives of being the first to raise wages, something that Costco clearly shows, are great for the growth and morale of a company. If one is the second or the third company to raise wages, however, the benefits will be lower, as it will become more expected to match other companies’ wages, with turnover rising as employees follow the money. Inflation can also occur, with more money in consumers’ hands leading to a decrease in the overall value that each dollar holds.
In today’s economy, everyone wants to stretch each of their dollars as far as they can go. Increased wages may be just the solution that companies are looking for, with the Costco Way being something that leads to benefits in every aspect of a company and an economy.
