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Costco Increases Its Minimum Wage To $16 An Hour—There Is An Alarming Downside That Needs To Be Discussed


In the midst of lawmakers in Congress considering President Joe Biden’s $1.9 trillion financial stimulus program, which involves potentially increasing the minimum wage to $15 an hour, Costco, the giant chain of membership-only warehouse clubs, said it will raise the minimum age of workers to $16 starting next week. 

This is a big move, given that Costco has about 180,000 employees in the United States—roughly 90% of them work hourly—and the company is one of the nation’s largest retailers—right behind WalMart.

During the U.S. Senate Budget Committee hearing, regarding the wages of workers, Costco CEO Craig Jelinek said, “Two years ago, we moved our starting hourly wage to $15 or more everywhere in the U.S. Effective next week, the starting wage will go to $16.”  

Jelinek also pointed out that his employees receive increases in pay based upon the hours they’ve worked. Full-time employees get two pay enhancements per year. Part-time workers receive a pay increase once a year. Costco workers also receive two bonuses each year, which can be about $4,000. When you include the raises and bonuses, the average hourly wage is around $24, Jelinek said. 

The Costco chief executive is all about business and said, “I want to note this isn’t altruism.” Jelinek explained, “At Costco, we know that paying employees good wages makes sense for our business and constitutes a significant competitive advantage for us. It helps us in the long run by minimizing turnover and maximizing employee productivity.” 

Senator Bernie Sanders is a big proponent of increasing the minimum wage. In a tweet, he wrote, “You cannot tell me that raising the minimum wage to $15 an hour is a radical idea.” He explained that many lower-paid people need to collect some sort of state or federal aid. This means that the U.S. taxpayers are subsidizing the workers because the major corporations aren’t paying them enough to survive. 

Sanders tweeted, “Taxpayers should not subsidize starvation wages paid by the largest and most profitable corporations in America. We must raise the minimum wage to $15 an hour. It’s morally right, and good for the economy.”

As the federal minimum wage stagnated at $7.25 an hour since 2009, there have been private companies increasing wages. Amazon increased its starting wage to $15 in 2018. Retailers Target and Best Buy both enhanced their workers’ wages to $15 as well. The largest U.S. brick-and-mortar retailer, Walmart, pays an $11 minimum wage, but said it would increase it shortly for its over 400,000 workers. 

Not all companies are aboard with raising the minimum wage. A recent study by the Congressional Budget Office (CBO) was conducted to determine how increasing the federal minimum wage from $7.25 to $10, $12 or $15 per hour by 2025 would affect employment and family income. 

The conclusion was that increasing the federal minimum wage would have two major impacts on low-wage workers: earnings would increase for many, which would lift some families out of poverty. However, other low-wage workers would become jobless, their family income would drop and it could place them below the poverty threshold.  

The CBO offered a mixed message that was overall siding slightly against the increase. It concluded that the federal minimum wage would increase pay for at least 17 million people and lift almost 1 million out of poverty, but it could also cut 1.4 million jobs.  

A recent survey of small businesses indicated that they are largely against the $15 federal minimum wage. According to the CNBC poll, about 33% of the respondents said they’d likely lay off people if Congress passed the minimum wage law. 

It seems that large, dominant corporations, such as Costco and Amazon, have the financial might to raise pay, whereas small businesses operating on a paper-thin margin would be unable to handle the increase. This is especially acute, as the pandemic has wrecked many mom-and-pop enterprises. Tens of thousands of restaurants, gyms, bars and other Main Street small businesses are hanging on by a thread.

The idea of raising the minimum wage is noble and commendable, but many of the arguments rely upon raw emotion and neglect sound economic ramifications that will adversely impact the same people it’s trying to help. 

Raising the minimum wage has a number of serious and negative unintended consequences. Employers, especially small family and midsize businesses, will be disproportionately hurt by the extra costs incurred. The local neighborhood stores and businesses with razor-thin profits will be forced to raise prices to make up for the additional labor costs. With the increased prices, customers may elect to take their business elsewhere. Losing customers means losing income, which could result in the business having to layoff workers.  

Large corporations with big budgets will weigh the increased labor costs and elect to invest in technology to displace workers. This trend will soon become prevalent in the food service industry, hospitality, retail, construction and manufacturing. 

Amazon recently opened up several prototype Amazon Go stores that are self described as “a new kind of store, featuring the world’s most advanced shopping technology. No lines, no checkout—just grab and go!” Fast-food chains and large department stores will follow suit and implement self-service kiosks to save costs. 

Corporate executives will recognize that the $15 an hour could be routinely raised. They will weigh the future unknown costs associated with additional increases, coupled with the ever-increasing insurance costs, plus the time-consuming task of finding employees, training them and dealing with turnover. It’s easier and less expensive to have technology take over. The unintended consequence will be that there will be far fewer jobs available for those that need them most.

While some people may benefit with an increase in their hourly earnings, other employees will be let go to save costs. Employers may elect to cut hours across the board for everyone. 

We need to deeply look into this matter in a rational, unemotional manner. Otherwise, if we race into forcing every business, regardless of their size and ability to pay, there could be serious long-term repercussions for workers.





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