Businesses have a promising model to follow in implementing $15 wage

Guest Opinion: Costco's business model already provides a recipe for achieving business success while treating workers well.
Costco's business model: The aim is to prosper by creating happy customers and employees.

Costco's business model: The aim is to prosper by creating happy customers and employees. Ted Chi/Flickr

The landmark, unanimous decision by the Seattle City Council to approve a $15 minimum wage has set the city’s businesses in motion for implementing what will be the nation’s highest hourly pay. And while activists, workers and supporters applaud the decision, there are those with concerns that an increased minimum wage could have a negative impact, especially on small businesses. Potentially, it might cause businesses to close doors or cut jobs.

But, is there a way that there can be better pay for workers and more profit for businesses? What if it’s approached as part of a larger strategy — a profit-oriented approach that focuses on maximizing workers’ ability to drive sales and improve operational efficiency rather than minimizing their pay and benefits?

Such a strategy exists and it is demonstrated in local companies throughout the Seattle region — companies like hometown favorites Costco, NRG Insurance and Patagonia. We really can do better by doing good.

Zeynep Ton is associate professor at MIT and author of “The Good Jobs Strategy.” Ton’s teaching and her good jobs strategy draw on more than a decade of research. She has found that operational excellence enables companies to offer low prices to customers while ensuring good jobs for their employees and superior results for their investors.

Ton’s research includes Seattle-based business Costco, which is profitable because its business model focuses on the four components of her good jobs strategy: operational excellence; fewer but better choices for customers; investing in and empowering employees; and offering better wages and benefits.

At Costco, Ton’s good jobs strategy is evident: 98 percent of store managers are promoted from within and, not surprisingly, employee turnover is low. Employees are more productive and more innovative, which reflects positively on the business.

Currently, Costco retail staffers earn $11.50 an hour, even in states that have a lower minimum wage than Washington. And, in January, Costco CEO, Craig Jelinek, publically supported the $15 minimum wage increase in Seattle, calling it fair. Costco has even publicly advocated for a bill that would increase the federal minimum wage to $10.10 an hour.

The flip side of the economic model is one in which one in five workers have a “bad” job. In 2010, the Bureau of Labor Statistics found that the mean annual wage for a cashier at a retail job working 40 hours a week was only $19,801 a year with no health benefits. Businesses have long believed that the only way to remain competitive and profitable is to offer workers low wages, limited hours, poor benefits and inconsistent schedules. But there is another way, and Costco has proven that it works.

As Seattle businesses start to phase in the new $15 minimum wage, Zeynep Ton’s strategy is one that should be considered. The four pillars of her good jobs strategy provide a thoughtful and research-based approach for businesses struggling to determine how to implement the minimum wage increase. Businesses truly can do well by doing good.

 

Maureen Conway is vice president of The Aspen Institute and executive director of the institute's Economic Opportunities Program. Susan Crane is executive director of SkillUp Washington.


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Comments:

Posted Tue, Jun 10, 10:18 a.m. Inappropriate

I'd be more impressed with the business model if the example chosen wasn't a big box store that makes it's living by volume sales. Most of the businesses mentioned are large volume dealers. What is needed is an example of a small business that is using this model and staying afloat. And it would have to cut across the spectrum of all businesses, large or small volume sellers.

Djinn

Posted Tue, Jun 10, 11:07 a.m. Inappropriate

"And, in January, Costco CEO, Craig Jelinek, publically supported the $15 minimum wage increase in Seattle, calling it fair"

Especially for a business with only one location in the city, and whose shoppers have to pay an annual fee to shop there.

It's pretty easy to manage your labor costs when your customers have to pay money just to enter the door. I love Costco, but you really can't compare them to other retailers or small boutiques.

talisker

Posted Tue, Jun 10, 12:12 p.m. Inappropriate

If you read Costco's annual report you will see that they earn virtually nothing from the sale of goods. Their profit is almost exclusively derived from the sale of memberships. Thus in order to continue their revenue growth they must keep opening more stores and signing up new members. This is hardly a model that can be replicated by a small business.
The reason that low skill labor jobs pay so little is that there are many more low skill workers than there are jobs for them. This workforce imbalance will not right itself by increasing the minimum wage. Worker skills need to be improved, but that puts responsibility back on the workers themselves and the elected officials who control the education system, which is a much more challenging endeavor than just telling business owners to pay more.

ep

Posted Wed, Jun 11, 8:03 a.m. Inappropriate

That article is super incomplete as the other posters here have mentioned. Costco freely admits that the membership fee is key to their profit and their ability to pay workers better and so the writer of this article should put that out there front and center. It's not a formula available to most businesses even though President Obama does the same thing by holding up Costco as a poster child without giving you all the information you need to understand how they do it.

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