What Costco's New Wages Say About the Health of the American Economy

The company's pay hike might be a sign that employers will start paying their workers more in order to hold onto them.

Richard Clement / Reuters

On Thursday, Costco announced that it will be raising wages for both new and current entry-level workers in the U.S. and Canada. The raise is small—$1.50 extra per hour—but it means that Costco will be paying workers at least $13 an hour, up from $11.50. This increase is significant because the company hasn’t raised wages for entry-level of workers in nine years, and its move to do so now might suggest that, as the economy adds jobs, retailers will have to start paying their frontline workers more in order to hold onto them.

Costco, one the nation’s largest employers, has been known to pay its employees much more than its competitors pay theirs. Some of Costco’s employees are unionized and its CEO has been outspoken in supporting a federal minimum wage above $10. As a result of all this, Costco workers tend to be satisfied in a way that’s unusual for the retail industry—in the company’s 30-some-year existence, there haven’t been any major strikes or protests.

Which prompts Costco to be contrasted with Walmart, the U.S.’s largest employer, which has a history of being stingy with compensation in order to keep its prices low. (Walmart employees have found their company to be extremely resistant to unionization efforts.) Costco’s average hourly wage (about $21 an hour) is $8 higher than Walmart’s, and that probably has something to do with the company’s low turnover rate.

Because Costco is a smaller company than Walmart—it has around 200,000 full-time and part-time employees at its roughly 700 warehouse stores, compared to Walmart’s 1.3 million U.S. employees—the announcement about its raise is less significant than when Walmart announced its own raise two months ago. Hourly wages for full-time Walmart employees increased from an average of $13 to $13.38.

The fact that both Costco and Walmart are raising wages for their workers is evidence that the U.S. labor market might be tightening. The last two jobs reports have seen the unemployment rate below 5 percent—as the U.S. economy improves and job opportunities become more abundant, it’s expected that workers will have options to jump from job to job. Many businesses are now reporting that it’s harder to find employees to fill vacant positions, and the competition for low-wage workers is growing as well. As wage growth still remains tepid for most workers in America, Costco workers’ raise is hopefully not just a move consistent with the company’s past treatment of workers, but an encouraging sign that wages will start to rise more generally.