Costco to raise its minimum wage to $16 an hour

Costco waded into the debate over the federal minimum wage Thursday by announcing its wage floor will rise to $16 an hour.

The update directly applies to about a fifth of the more than 160,000 Costco employees who work hourly, accounting for 90% of Costco’s U.S. workforce, CEO Craig Jelinek said at a U.S. Senate committee hearing on how large companies pay their workers.

The pay bump, which takes effect next week, pegs baseline wages at the Issaquah, Wash.-based wholesale club above those at competitors Amazon and Target, which have instituted $15 wage floors in recent years. The minimum wage at Walmart, the largest employer in America, is $11.

Costco’s announcement comes amid mounting political pressure to raise the federal minimum wage. President Joe Biden called for a $15 hourly minimum wage during his campaign. Democrats introduced legislation last month to raise the wage to $15 over a period of five years.

Amazon, the nation’s second-largest employer, is also backing the effort for a federal $15 minimum. Last month it launched a full court press lobbying and advertising campaign in support of the bill.

Prominent business groups, meanwhile, are opposing the effort. The Business Roundtable and National Retail Federation have urged caution on raising the minimum wage, in part due to the ongoing economic pinch of the pandemic on many small businesses.

Costco increased its minimum wage to $14 in 2018 and $15 in 2019. The company, which has 558 locations in the U.S., says only 20% of its hourly employees make the minimum wage. Half its U.S. workers earn more than $25 an hour, Jelinek said Thursday.

“This isn’t altruism. At Costco, we know that paying employees good wages and providing affordable benefits makes sense for our business and constitutes a significant competitive advantage for us,” Jelinek said. The company’s relatively high wages minimize turnover and maximize productivity, he said. Costco is set to report next week on its earnings for the months of December, January and February.

Costco’s wage floor hike, though, comes alongside a pay decrease for some of the company’s employees. Costco began paying hourly workers an extra $2 an hour at the beginning of the pandemic. The company plans to roll back that raise at the same time as it raises its wage floor, Jelinek said Thursday, converting some of the premium to a permanent increase at each step of its hourly wage scale. Workers at Costco’s single Seattle location still will receive an extra $4 an hour in hazard pay, instituted by city ordinance last month.

Amazon’s advocacy of a $15 minimum, meanwhile, comes amid criticism from workers-rights groups that the company could be doing more to support its hourly employees.

Amazon has employed aggressive tactics against a union organizing drive at its warehouse in Bessemer, Ala., which if successful could result in higher wages for employees. Amazon is also the nation’s fifth-largest employer of food stamp recipients after Walmart, McDonald’s and two dollar-store chains, according to a November federal report that examined employers of food stamp recipients in nine states.

“Why should taxpayers subsidize the starvation wages being paid at some of the largest and most profitable corporations in America?” said Sen. Bernie Sanders, I-Vt., the chair of the Budget Committee that called Thursday’s hearing.

Evidence of how a minimum wage hike affects businesses is mixed, according to University of Washington professor of public policy Jacob Vigdor, one of the lead researchers of an ongoing study of Seattle’s 2014 implementation of a $15 minimum wage. Today, Seattle’s minimum wage stands at $16.69.

Businesses overwhelmingly survived the wage hike, Vigdor testified Thursday, price increases were limited and workers didn’t lose their jobs. Businesses also saw reduced turnover and higher productivity.

But many workers, especially less-experienced ones, saw their hours slashed, the report found, and job openings dried up. Teenagers just entering the job market found it harder to get a job.

“Deciding to raise the minimum wage really boils down to whether you want to give the advantage to older or younger workers,” he said.