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We need more Costcos in America

Tucson Citizen, December 3, 2012

  By David Pinar

No, this isn't a promo for Costco — while a member and shopper at Costco, I don't work for them and don't own any stock. This is a study in contrasts, what Costco thinks of their employees and how it treats them in comparison to the other retail giant, Wal-Mart.

Take a look at any Costco employee and you'll immediately notice a big difference between them and a Wal-Mart employee. I personally think Costco employees look happier and their uniforms snazzier than Wal-Marts, but that's subjective. I'm talking about their name tags. Wal-Mart name tags just have their first name and the claim "Our people make the difference"; some don't even have the employee name, just position: "People Greeter" "Our people make the difference". Costco name tags have their name and the reason why their people actually do make the difference: it says their name and: "since 2002," "since 1999" and "since 1995." You see, Costco name tags have the year the employee started working for the company, and for many that was years and years ago. And for good reason — Costco pays it's employees significantly more than pretty much any comparable retailer. A Costco floor worker can earn up to a mid-$40,000 annual range, which isn't bad for a job they can start working in right out of high school. And over 80 percent of Costco workers have competitively priced health insurance plans. Know what Wal-Mart's largest health insurance plan is? It's called Medicaid, AHCCCS here in Arizona. Yes, many Wal-Mart workers earn so little that they fall within FPL levels (Federal Poverty Level) that they qualify for government health insurance; many qualify for food stamps as well. What's that you say? "Well, it must be the %$#@! unions that run Costco!". Nope, Costco workers are not unionized, except for a small percentage of Price Club workers it integrated into their workforce when Costco took over Price Club. Costco simply operates its business under the philosophy espoused by Henry Ford almost a century ago:

"There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible."

You see, it occurred to Henry Ford that if he paid his workers enough not only would they be more productive, they would also be able to actually buy his products and his company would prosper even more. Costco has been breaking the mold for many years, and flouting the myth pushed by short-term thinking on Wall Street that labor costs should be reduced to have high profit margins. And it has paid off: Costco stock has tripled in value over the past 10 years. And Costco sells about twice as much per square foot than Sam's Club, Wal-Mart's membership club store. And while Costco is comparatively generous with compensation for its store workers, it's downright frugal when it comes to compensation for Executive Management. New CEO Craig Jelinek earns around $2.3 million, including salary, incentive bonus, stock options, etc. Frugal, you ask? Actually, yes, that's around 50 times the average worker's salary — about the ratio of what CEOs were paid in the 1960s. In comparison, that ratio hit a high of 531:1 in 2000, at the height of the tech stock market bubble, when CEOs were cashing in big stock options. In 2012, the average compensation of CEOs was 380 times the average workers pay. So yes, Costco is comparatively frugal in executive management compensation. Oh, and by way of comparison, the ratio of CEO to average worker pay is only about 25:1 in Europe. But we know about those European Socialists.

But, back to the worker peons at Costco and Wal-Mart. Now, what would happen if Wal-Mart followed the example of Costco? What would be the effect on the economy if Wal-Mart raised their wages for their employees? Absolute disaster, right? The price of Kraft Mac & Cheese would go through the roof, and we couldn't possibly afford those wonderfully crafted clothes and shoes made in China, right? Well, actually not. According to a study (PDF) by the Center for Labor Research and Education at the University of California at Berkeley, it would be a major overall positive impact on the economy, especially on the workers at Wal-Mart.

Our data suggests that a $12 per hour minimum wage standard at Walmart would be effective in aiding lower-income families. If Walmart increased its minimum wage to $12 per hour, 41.4 percent of the income gain would accrue to workers with wages below 200 percent FPL. These low-wage workers could expect to earn an additional $1,670 to $6,500 a year in income.

If Walmart passed on 100 percent of the wage increase to consumers through price increases, which is unlikely, the impact for the average Walmart shopper would be $12.49 a year.

Twelve dollars and forty-nine cents a year? Think about it. It sounds like one of those TV commercials saying that for only a dollar a day you could feed xxx many starving people somewhere. For an average cost of only $12.49 per year to the average Wal-Mart shopper, the average Wal-Mart worker could rise well above the Federal Poverty Level, enjoy a more productive life and be a more productive worker. Maybe we could even afford to pay $15 a year more at Wal-Mart and give those workers some health insurance so they don't have to wait until they're too sick to do anything but crowd into an emergency room. It reminds me of that Papa John's Pizza guy crying that Obamacare was going to cost him another 10 to 15 cents a pizza to give his workers health insurance. Hey buddy, I'll give a quarter extra per pizza just to get you to shut up and give my neighbors who work for you some health insurance.

Enough of this Wall Street Vulture Capitalist demands that if we don't ship the job overseas then we have to squeeze American workers to accept the lowest possible minimum wage so they can extract the highest possible profit. Profit, fairness, and treating workers with respect and paying them fair compensation are not mutually exclusive. I enjoy watching it action every time I got to Costco.

Original Article

 

 
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