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Big chains pay better than mom and pop stores

Scott Olson

The rise of soulless big box retail chains has often been lamented, frequently by people who observe that retail jobs generally pay low wages (see, e.g., "Price Tag" off Sleater-Kinney's excellent new album) but there's persuasive evidence that big stores and big chains are better for workers that smaller, homier operations. The data comes from Brianna Cardiff-Hicks, Francine Lafontaine, and Kathryn Shaw in an NBER working paper titled "Do Large Modern Retailers Pay Premium Wages?"

The short answer is yes. The long answer is below.

Big companies pay higher wages

They find that in the retail sector, working for a big company rather than a small one leads to higher wages. High school graduates who work for companies with over 1,000 employees earn 15 percent more than similarly educated workers who are employed by smaller firms. Workers with at least a little college education see a bigger pay boost and earn 25 percent more when employed by big companies.

Big stores pay higher wages

(Brianna Cardiff-Hicks, Francine Lafontaine, and Kathryn Shaw)

Sometimes a large company operates small stores (many Starbucks shops are small) and in principle a small company can operate a very large store. The researchers find that not only do big companies pay higher wages, but big stores pay higher wages. High school graduates working at retail establishments with over 500 workers earn 26 percent more than similarly educated workers at smaller shops. Those with at least some college education, again, earn an even larger premium — 36 percent more at big stores than small ones.

It's not all selection effect

Those findings involve basic demographic controls, but there's more to life than demographics. When the authors do more math, they find that a lot of this premium is due to "unobserved worker quality." In other words, big companies are good at recruiting the best workers from all demographic cohorts and that's part of the reason they pay more. But a lot of the wage increases remain. The exact same worker can earn an approximately 10 percent raise (11 percent for high school graduates, 9 percent for those with at least some college) by moving from a small company to a large one.

Moving from a small store to a big store has an even bigger effect — 19 percent for high school graduates and 28 percent for those with some college.

This should not be a huge surprise

Given widespread skepticism of big box versus mom and pop retailers, these findings will be surprising to some. But the general conclusion that larger companies pay higher wages than smaller ones is fairly well-established in the literature. What is new here is the demonstration that this stylized fact holds true inside the retail sector, and also that it is robust to sophisticated statistical controls.

Big companies create the chance for upward mobility

Another finding from the paper is that 28 percent of retail workers are eventually promoted into a managerial role offering higher wages. Small firms, by contrast, typically have less need of managers and managerial jobs are often occupied directly by the people who own the company and their family members. Big companies are more likely to be owned impersonally by shareholders who aren't involved with the management of the company, allowing more opportunities for outsiders to move up.

A debate whose time has passed?

The authors frame the policy implications of their findings in terms of the tendency to lament the loss of "good manufacturing jobs" and the rise of Walmart-style chains. They write that there is an alternative to manufacturing-promotion as a strategy for increasing worker earnings and "that alternative is to prepare workers to be managers in modern retail firms."

In many ways, however, the debate over the merits of the big box store seems like a debate for the previous decade. Borders and Circuit City are out of business, while their competitors are on their last legs. The big question in retail is the race between Walmart's efforts to move into e-commerce and Amazon's efforts to move into grocery delivery. Whoever succeeds (or both of them) won't really be running big box stores anymore. And the debate and analysis over wages and promotional activities will have to be done all over again for the new cohort of retailers.

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