Workers earn more at larger retailers

A new NBER working paper finds 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.”

According to the paper, not only do “Wage rates in the retail sector rise markedly with firm size and with establishment size,” but also “because modern retail firms are bigger, they have more layers of management.” Which means more opportunities for promotion. A few other interesting findings:

  • “Large retail firms pay more than small firms in the retail sector if an employee has a high-school or less education, but they pay considerably more for those with some college education or more.”
  • “We also find no difference in premia for rural versus urban markets. The latter result is especially interesting as establishments in rural areas are those that would be most likely to benefit from market – specifically monopsony – power in their local labor markets, which would suggest lower wage premia in rural markets. But we find no evidence of such differences.”

The study even compares retail favorably to manufacturing:

As in manufacturing, there is room in retail for substitution of computers for people; but, contrary to manufacturing, overall growth in the sector so far is swamping that substitution.

. . . there is an alternative to policies aimed at building up manufacturing. That alternative is to prepare workers to be managers in modern retail firms. A manager in the retail sector makes more per hour than an operative in manufacturing, and the need for managers in retail is greater than in manufacturing, as indicated by the higher proportions of managers in all size firms. Managers in retail are more highly skilled than operatives in manufacturing: managers have some college education and likely have unobserved personal skills, such as people-management skills or organizational skills. But expending resources on education to increase preparation for managerial jobs in the retail sector could be a viable alternative to expending resources on education for manufacturing work, because wages are higher for managers in retail than they are for non-managers in manufacturing.

As Adam Ozimek writes,

A popular snapshot view of the U.S. labor economy holds that “good” manufacturing jobs have been replaced by “bad” retail jobs. A related popular notion is that big chain stores are replacing mom-and-pops and using their power to cut wages. These generalizations have promoted the view of big retailers as a negative force in the economy. But a new NBER working paper challenges this perception. Big retailers, the authors argue, pay better wages than mom-and-pop stores. What’s more, they promote upward mobility as many workers become managers. . . .

Contrary to some popular perceptions, it appears that curbing big retailers will hurt, not help, wages and opportunities for many workers.