Why Wal-Mart Shouldn't Pay Employees As Much As Costco Does

Costco employeeGetty Images/Spencer PlattCostco’s workers enjoy better pay and benefits than their counterparts at other companies.

Higher-wage activists have long used Costco’s high pay as ammunition against other retailers like Wal-Mart and Target.

The warehouse retailer pays workers an average of $US20.89 an hour, compared with Wal-Mart’s average hourly wage of $US11.83.

People who advocate higher wages say that if Costco can afford to pay workers more, surely Wal-Mart can afford to do the same.

Megan McArdle at Bloomberg View has a compelling argument for why Wal-Mart doesn’t — and possibly shouldn’t — offer Costco’s high wages.

She argues that if everyone adopted higher wages, the benefits of paying more would disappear.

Walmart protestREUTERS/Lucy NicholsonWage activists have long argued that Wal-Mart should follow Costco’s lead.

Costco’s pay is what economists call an “efficiency wage.”

“Paying workers more than the going market rate for their skill level can bring a lot of benefits to your company,” McArdle writes. “You get lower turnover and, arguably, better on-the-job performance.”

The low turnover stems from happier workers, more high-quality applicants to choose from, and workers’ fear that they can’t make the same money anywhere else.

If everyone in the industry raised wages, Costco’s quality of customer service would probably decline. And it’s unlikely that Wal-Mart’s would improve.

“If all the employers of minimum-wage labour followed Costco’s lead and paid higher wages and benefits, Costco would be less profitable, because the quality of its labour force would revert to the mean,” she writes.

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