Why Wal-Mart shouldn't pay workers as much as Costco does

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 $20.89 an hour, compared with Wal-Mart's average hourly wage of $11.83.People who advocate higher wages say that if Costco can afford to pay workers more, surely Wal-Mart can afford to do the same.Tim Worstall at Forbes explains why higher pay for Wal-Mart workers might do more harm than good."(About)700,000 people would lose their jobs at Wal-Mart," Worstall writes. "Which is, I think youll agree, a fairly large result and one that casts a certain amount of doubt on the idea that raising wages has no unemployment effects."Costco's sales per worker are twice as high as Wal-Mart's. The retailer also has lower overhead costs thanks to its no-frills warehouse model.Therefore, Costco can afford to pay more than Wal-Mart and still profit.Wal-Mart employs more than 1.2 million people in the US.Megan Curdle at Bloomberg Viewalso has a compelling argument for why Wal-Mart doesn'tand possibly shouldn'toffer Costco's high wages.She argues that if everyone adopted higher wages, the benefits of paying more would disappear.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," Curdle 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 labor followed Costcos lead and paid higher wages and benefits, Costco would be less profitable, because the quality of its labor force would revert to the mean," she writes.SEE ALSO:Costco's simple strategy for outperforming Wal-Mart and TargetFollow Us:On Facebook.Join the conversation about this story
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