Overall large retailers are raising wages

by on July 21, 2014 at 11:05 am in Data Source, Economics | Permalink

There is a new NBER Working Paper from Brianna Cardiff-Hicks, Francine Lafontaine, and Kathryn Shaw, and the abstract is this:

With malls, franchise strips and big-box retailers increasingly dotting the landscape, there is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail. Retail jobs have spread, while manufacturing jobs have shrunk in number. In this paper, we characterize the wages that have accompanied the growth in retail. We show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when we control for worker fixed effects, suggesting that there is sorting of better workers into larger firms. Also, higher ability workers get promoted to the position of manager, which is associated with higher pay. We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores.

This is not a surprising result, but it doesn’t receive nearly enough attention in popular discussions of the subject.  There is a related ungated earlier draft here.

ummm July 21, 2014 at 11:40 am

No shock here. nominal wages always seem to keep rising

TheColourfield July 21, 2014 at 12:36 pm

“here is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail ”

“We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores. ”

mom and pop retail ≠ manufacturing

John July 21, 2014 at 1:12 pm

TheColourfield’s point is appropriate — what is it that we’re suppose to be getting from this. From the abstract it appears they are simply reporting the well known firm size wage premium rather than anything related a change in the relative price of labor between retail and manufacturing sectors.

Adrian Ratnapala July 22, 2014 at 12:56 am

TheColourfield’s comment exploits a textual ambiguity in the original abstract to somehow imply that jobs in manufacturing count while jobs in other sectors don’t. That’s nonsense. For us to worry about a shift from manufacturing to retail, we would have to know that retail is somehow inferior, perhaps because it has lower wages. But apparently this is increasingly not so, perhaps because of a well known effect. Is that not worth pointing out?

Careless July 21, 2014 at 1:14 pm

With malls, franchise strips and big-box retailers increasingly dotting the landscape,

Isn’t the number of malls declining?

Roy July 21, 2014 at 1:29 pm

It isn’t just malls it also happens to big box stores and boutiques and smsll shops are in decline too. Even visiting my Mom in Houston, which compared to much of the country is booming the amount of vacant or underutilized commercial property is impressive.

Benny Lava July 21, 2014 at 3:26 pm

This is concurrent with my understanding that mall and big box retailers are in serious decline. So this article is comparing one declining industry with another declining industry.

Spencer July 21, 2014 at 4:23 pm

In 2006 average hourly earnings in manufacturing was 135% of average hourly earnings in retail.

Between 2006 and 2009 this ratio rose to 150 and remained there until 2011. Between 2011 and 2014 it slipped to 146.

This BLS data does not exactly support this study’s conclusions.

Dismalist July 21, 2014 at 7:31 pm

There is something deeply misguided about looking for specific sectors that pay high wages. Mining pay high wages: I don’t see anybody lining up, except perhaps in petroleum. Yes, free trade knocks wages in clothing. Given huge scale economies, what could Microsoft pay if it were confined to selling in, say Luxemburg? We are as productive as we are, on average, because of our skill, our luck, and the size of markets we can sell to.

TheColourfield July 21, 2014 at 7:47 pm

How about if Microsoft were confined to manufacturing in say Germany ? Neither supposition makes any sense. Under free trade we have decided that goods are mobile. Labour not so much.

Dismalist July 21, 2014 at 7:57 pm

International mobility of goods is a substitute for international mobility of capital and labor.

DJ July 24, 2014 at 10:42 am

+1

Eric July 22, 2014 at 1:02 am

It is probably true that big box retaiers pay higher wages than competing mom and pop retailers. But the big box retailers did not generally take out the indiviual operators. They often took out regional chains that frequently paid reasonably well.

To use the Washington D.C. area as an example Home Depot paid a lot less than the the regional chain they supplanted, Hechinger’s. And the new Wal-Mart in Fairfax pays far less than Safeway or Giant.

Floccina July 23, 2014 at 11:33 am

I worked in small retail in the 1970s. I am always surprised when people attack Walmart for both paying low wages and squeezing out small retailers because in my experience the small retailers paid just as bad and there was less opportunity to move up. Walmart has a career path.

George July 23, 2014 at 3:15 pm

This article does not imply that the new retail is better than the old manufacturing. Talk of hourly wage rates ignores the fact that those being paid hourly wages are not getting 40 hours a week, 20 to 30 at best. The old manufacturing was either salaried or at least 40 hours week. That a couple of people in a large retail store are paid well does not imply that the new retail is as good as the old manufacturing

George July 23, 2014 at 9:45 pm

I was seriously just about to type that George… Not to mention that if a mom and pop shop employees very few employees that get paid hourly they will probably get more than 40 hours per week so potentially they are making more (but putting in more hours) and I would wager like what they do more also.

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