Costco CEO Craig Jelinek has joined the push to raise the federal minimum wage to $10.10 per hour by saying he supports the Fair Minimum Wage Act of 2013, which would not only raise the current wage from $7.25, but would index the wage to inflation and raise wages for tipped employees, too. Costco already pays its starting employees a wage of $11.50 per hour while maintaining a higher sales volume than competitors such as the Walmart-owned Sam's Club and ranking in the top 25 of the Fortune 500 in terms of revenue.
Jelinek explained his company's philosophy in a statement:
"An important reason for the success of Costco’s business model is the attraction and retention of great employees....Instead of minimizing wages, we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage."
Costco's policies and support for higher wages and benefits for its workforce is supported by scientific research. MIT professor Zeynep Ton found a significant increase in sales as worker salaries were increased. She explained why:
I have studied retail operations for more than 10 years and have found that the presumed trade-off between investment in employees and low prices can be broken. Highly successful retail chains—such as QuikTrip convenience stores, Mercadona and Trader Joe’s supermarkets, and Costco wholesale clubs—not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors. They have demonstrated that, even in the lowest-price segment of retail, bad jobs are not a cost-driven necessity but a choice. And they have proven that the key to breaking the trade-off is a combination of investment in the workforce and operational practices that benefit employees, customers, and the company.
Ton's findings were consistent with other recent research:
Research by Marshall Fisher, Serguei Netessine, and Jayanth Krishnan support my findings: Their analysis of 17 months of data from a large retailer shows that for every $1 increase in payroll, a store could see a $4 to $28 increase in monthly sales.