The High Cost of Low Wages

Cascio, Wayne F.
Harvard Business Review Vol. 84 Issue 12, p. 23

This article compares Wal-Mart’s Sam’s Club and Costco in terms of employee benefits and wages. The author claims that managing labor costs isn’t a bad idea, but stingy pay and benefits don’t necessarily translate to lower costs in the long run. With 338 stores and 67,600 full-time employees, Costco is the number one wholesaler, while Sam’s Club has 551 stores and 110,200 employees and is the number two wholesaler. Wages at Costco are much higher than those at Sam’s, and it is also more generous with its benefits. The difference, even though Costco’s practices are more expensive, is that Costco has a very low turnover and Sam’s Club a high one. Therefore, the annual cost of replacing employees is nearly three times more for Sam’s Club. Costco’s strategy for cost containment is employee loyalty.