Wednesday, 23 July 2014

Do large modern retailers pay premium wages?

An important question given the grow we have seen in larger retailers in New Zealand and around the world. The question is studied in this new NBER working paper Do Large Modern Retailers Pay Premium Wages? by Brianna Cardiff-Hicks, Francine Lafontaine, Kathryn Shaw. The abstract reads,
With malls, franchise strips and big-box retailers increasingly dotting the landscape, there is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail. Retail jobs have spread, while manufacturing jobs have shrunk in number. In this paper, we characterize the wages that have accompanied the growth in retail. We show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when we control for worker fixed effects, suggesting that there is sorting of better workers into larger firms. Also, higher ability workers get promoted to the position of manager, which is associated with higher pay. We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores.
So the short answer seems to be yes, at least for the U.S., but to me the interesting thing is the sorting effect with better working employed at the bigger retailers. Is this a version of the Henry Ford $5 a day idea?
Henry Ford’s friend and general manager, James Couzens, came up with the innovative idea of paying the workers enough to keep them from leaving. $5 a day, said Couzens. Henry, himself a multimillionaire, countered that $3 a day was more than enough, then a few days later he grudgingly agreed to $4 before eventually caving in to Couzen’s insistence. Finally, in January 1914, Ford doubled the wages of his workers to an unheard-of $5 a day. Ford was swamped with job applications and absenteeism dropped from 10% to 0.5%.


Brett said...

It appears to still be in effect even when you factor in the "higher worker quality"/efficiency wage factor, for both high school graduates and college graduates. It's the "high school graduate" aspect that really gets my attention the most, because I could imagine the "college educated" side of things being skewed by the bigger firms simply having more higher-paid employees.

Good stuff. They draw the line at "1000+ employees" versus "10 or less", although I'd love to see a comparison with firm sizes in-between to see if it scales linearly.

Anonymous said...

You look at wages; but don't consider how the wages are applied. In every instance I wager that the wages while "relatively high" i.e. as compared to other retail chains -- one thing remains constant in ALL retail chains -- Part time employment. Now to avoid benefits.

This article is about misdirected research -- it is short on facts and long on meadow muffins.

Anonymous said...

Agree with comments by Anonymous... Also, consider how many small businesses have closed down because of Walmart. LOST wages for those towns and a lot of family businesses gone. BUT, check out the WALTON'S success and how much their family is WORTH. Not so sure they are really thinking about their employees. What about their suppliers that close down. More lost wages not replaced! Do your research before believing they are such heroes!

Paul Walker said...

How many small business have closed down because of Walmart? Very few.

On the effects of large retailers on small business see here.

"Interestingly, the slope of the regression line in Figure 4b is actually positive and significantly different from zero, which suggests that states with more Wal-Mart stores actually have significantly higher levels of five-to-nine-employee establishments."