Costco raising starting wages to $16 amid calls for federal $15 minimum – will competitors follow?

Costco, the second-largest global retailer behind Walmart, will raise its hourly base wages for workers to $16, the company’s chief executive Craig Jelinek told members of Congress on Thursday.

The wage hike – which pushes its starting pay above competitors like Amazon, Target and Walmart – comes as lawmakers debate raising the federal minimum wage to $15 an hour from the current $7.25 minimum.

Congressional Republicans have objected to efforts to raise the federal minimum – which is even lower for tipped workers – as part of a $1.9 trillion Covid-19 relief package proposed by the White House and due tor a vote in the House of Representatives on Friday.

Democrats’ proposal would gradually raise the federal minimum by $2.25 every year through 2025. Every year after that, the wage would be indexed to median wage growth.

Republican senators Tom Cotton and Mitt Romney have proposed the Higher Wages for American Workers Act, which would raise the federal hourly minimum from $7.25 to $10 over a five-year period.

During Senate Budget Committee hearing (“Should Taxpayers Subsidize Poverty Wages at Large Profitable Corporations?”), Republican Senator Lindsey Graham told Mr Jelinek “I just want to let you know that my concern is not really about Costco.”

He asked Mr Jelinek whether he would understand why raising the federal minimum amid the economic fallout from the coronavirus pandemic could be a “devastating blow” to small businesses.

“No, I can’t understand why it would be a devastating blow,” Mr Jelinek said. “I think it’s a devastating blow to the employees.”

Costco raised its minimum wage to $14 in 2018 and $15 in 2019, with 20 per cent of its thousands of hourly workers earning the company’s minimum set wage. The average hourly wage for Costco employees is $24.

The retailer employs 180,000 people in the US.

Amazon raised its minimum hourly wage to $15 in 2018. Target and Best Buy also raised their hourly minimums to $15 in 2020.

Walmart, the largest US retailer, recently announced that it intends to raise hourly wages to $13 for roughly 425,000 workers, a quarter of its workforce. The company’s current minimum wage is $11.

“I want to note this isn’t altruism,” Mr Jelinek told the committee on Thursday. “At Costco we know that paying employees good wages ... makes sense for our business and constitutes a significant competitive advantage for us.”

In his remarks to the committee he now chairs, Senator Bernie Sanders – who has pushed for raising the federal minimum wage and has ushered legislation through the Senate – said “why should working people be subsidising the wealthiest families and largest corporations in America because of the starvation pages they pay their workers”.

He condemned large companies that have workers relying on public assistance while the companies see record profits.

“The simple truth is no one in American can live with dignity or live on $11 or $12 an hour,” he said.

Raising the federally set minimum wage to $15 an hour would lift nearly 1 million people out of poverty and raise wages for millions of Americans, according to the Congressional Budget Office.

The agency’s 2021 report says a wage increase could lead to 1.4 million job cuts by 2025, but it also would lift 900,000 people out of poverty and raise incomes for 17 million people, or roughly 10 per cent of the US workforce. Another 10 million workers who earn slightly more than $15 per hour would also see pay raises.

An analysis from the Economic Policy Institute called the report’s predicted impacts to job losses “just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate”.