Kathryn Shaw: Big Box Stores Pay Higher Wages Than You Think

Image

Even Walmart, which is often criticized for its low wages, probably pays more than typical mom-and-pop stores. | Reuters/John Gress

A hallmark of modern retail has been the rise of large chains, such as Walmart and Whole Foods Market, which account for a steadily increasing share of retail employment. But the idea that workers suffer as big chains sweep over the landscape, replacing mom-and-pop retailers, is wrong — at least where wages are concerned.

Pay is, on average, 15% higher in the largest retail firms than small firms, Stanford researchers conclude. Perhaps even more important, workers have more chance to move up at big retail chains than in smaller shops. Average managers at national chains earn more than $65,000 a year, and some positions pay more than $100,000 a year.

“The data suggests that the larger firms attract the better quality workers, both by offering higher wages and, perhaps even more importantly, opportunities to advance,” says Stanford Graduate School of Business Professor Kathryn Shaw. “The small-scale stores are under a lot of competitive pressure, and they really don’t pay or offer chances for advancement.”

Even Walmart, which is often criticized for its low wages, probably pays more than typical mom-and-pop stores, Shaw says.

The research has implications for policymakers and local governments, which sometimes try to keep big chains out based on the premise that low-paid chain jobs replace higher-paying positions. The research suggests those policymakers could be ignoring the potential for the growth of middle-class jobs at big retailers.

To survey wages in the retail sector and to compare them across firm size and to jobs in manufacturing, Shaw worked with Francine Lafontaine of University of Michigan’s Ross School of Business and Brianna Cardiff-Hicks, formerly a Stanford GSB PhD student. The team looked at data from the 1996 to 2013 Current Population Survey and the National Longitudinal Survey of Youth from 1986 and 2010. The large sample size and the analysis over a length of time make the research particularly valuable.

Pay is 15% higher in large firms with 1,000-plus workers compared with mom-and-pops with fewer than 10 workers. For a nonmanager, that’s the difference between $13.61 an hour at the average small retailer and $15.10 at one with more than 1,000 employees. For a manager, the average pay ranged from $19.43 at a small retailer to $21.04 at a large one.

Maybe even more important, the big chains offer opportunities for people to move up. In retail stores, 18% of workers are first-line supervisors and another 10% are more advanced managers. As people are promoted, pay advances: the average supervisor earns $43,142 and the average manager above that earns $66,802.

A long-standing puzzle

Exactly why large firms pay more, not just in retail but also in other areas of the economy, has long been a puzzle for researchers, Shaw says. The most likely explanation is that large firms are more productive than small firms, due to investments in technology, branding, and coordination.

In retail, part of the reason may be that larger firms are more likely to be unionized. The highest-paying firms in this research were those with about 400 employees, Shaw says. That could be the result of a large number of unionized grocery store chains in that cohort, she says.

Where managers earn a middle-class wage

To put numbers to specific firms — Walmart, Starbucks, Whole Foods Market, and Costco Wholesale — the researchers tapped into an industry website called Glassdoor. The four companies typically pay more than minimum wage on an hourly basis, but what was most striking was the amount they pay managers, the researchers write.

Hourly pay at the four ranged from a low of $8.48 an hour, for a Walmart cashier, to $17.57 for a worker at Whole Foods Market. Managers at the chains earned from $34,000 a year for an assistant manager at Walmart to $109,000 a year for a general manager at Costco.

The research contradicted the stereotype of retail jobs being filled by only low-skill workers. Educated workers earned higher wages, probably because they advanced into those higher-paying jobs. But they couldn’t have earned higher wages if there weren’t a demand for higher skills on the job.

Retail vs. manufacturing

However, when the researchers compared retail jobs to manufacturing jobs, they found manufacturing jobs are much better paying. Retail workers earned only 68% of what manufacturing workers earned.

The effect held true even when the researchers compared the largest retailers, the high-paying ones, with similarly sized manufacturing companies.

Nonmanagers at retailers with more than 1,000 workers earned an average of $15.10 an hour, compared with $25.90 an hour at similarly sized manufacturers. Managers in the retail companies earned $21.04 an hour, while their counterparts at manufacturers earned almost double that: $40.60 an hour.

“We would speculate that well-paid manufacturing jobs tend to be higher-skilled, entail more physically onerous working conditions, and be unionized,” the researchers write.

Still, policymakers who promote jobs in the shrinking manufacturing sector while ignoring the potential of high-paying retail jobs are probably making a mistake.

The researchers suggest policymakers concerned about middle class jobs would do well to look at where their number is growing: at sophisticated large chain retailers, especially among their managers.

And while there is room in retail to substitute computers for people, “overall growth in the sector so far is swamping that substitution,” the researchers write. “The retail sector is likely to continue to flourish.”

Kathryn Shaw is the Ernest C. Arbuckle Professor of Economics at Stanford Graduate School of Business, Brianna Cardiff-Hicks is an associate at Cornerstone Research in Menlo Park, California and Francine Lafontaine is the William Davidson Professor of Business Economics and Public Policy at University of Michigan’s Ross School of Business. “Do Large Modern Retailers Pay Premium Wages?” was published by the National Bureau of Economic Research in July 2014.