Why Costco is Backing Obama's Minimum Wage Push

Spencer Platt, Getty Images
Spencer Platt, Getty Images

In a break with the rest of the retail industry, Costco has expressed support for President Obama's proposal to raise the federal minimum wage to $9 an hour.

In fact, Costco CEO Craig Jelinek is throwing his support behind the Fair Minimum Wage Act of 2013, a new bill that would eventually raise the federally-mandated minimum wage all the way to $10.10.

It's unusual to see a retailer advocate for a higher minimum wage -- after Obama called for the increase in his State of the Union address, the National Retail Federation said it would raise costs and kill job growth. But in a news release announcing his support, Jelinek makes it clear why he wouldn't mind seeing the minimum wage go north of $10: He already pays his employees at least $11.50 an hour, so a hike wouldn't directly impact Costco's payroll at all.

"Instead of minimizing wages, we know it's a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty," Jelinek said. "We support efforts to increase the federal minimum wage."

Jelinek is a Democrat who supported Obama during his 2012 re-election campaign, so it's not surprising that he would support a liberal cause. But it's also fair to say that Costco would stand to benefit from a higher minimum wage.

After all, the law would mean that Costco's wages would stay the same, while its competitors -- like Walmart-owned Sam's Club (WMT) -- would have to raise their employees' pay. Anything that increases costs for the competition has to be a plus for Costco, especially if it means that those competitors have to raise prices to maintain their profits.

A higher minimum wage would give many of Costco's customers a bit more disposable income. That's a side effect that Obama alluded to in his address, noting that "for businesses across the country, it would mean customers with more money in their pockets."

For a company like Walmart, it's debatable whether increasing the buying power of their less-prosperous customers would really offset the impact of having to pay higher wages. But for Costco, which follows a business model that already includes a relatively high wage for its employees, it's easy to see how a higher minimum wage could boost sales without increasing costs.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.