The retail sector and the future of American wages

The National Bureau of Economic Research released a working paper last week that sheds new light on the long-term trends in wages for American workers. The paper, by Brianna Cardiff-Hicks, Francine Lafontaine, and Kathryn Shaw, looks at wages within the retail sector, focusing particularly on the pay of large retailers. They find these “modern retail” stores pay better than traditional mom-and-pop retailers.

The economists’ finding is certainly a positive one for workers, but we should be cautious about its implications for the future.

The paper’s main finding is that the well-known wage premium for workers employed by larger firms and establishments in all sectors holds specifically for the retail sector, too. According to the authors, the wage premium paid to a high-school educated worker is 11 percent and to a worker with at least some college education is 9 percent at the broader company level. At the individual store level, the wage premium is even larger—at 19 percent for the high school graduates and 28 percent of a worker with some college education.

So in an era of stagnating wages, this result is good news. The increasing size of firms and establishments within the retail sector as well as their growing geographic reach means that as the Wal-Marts and Costcos of the world replace mom-and-pop shops, increased wages for workers go hand in hand. And because the retail sector appears to be a growth sector that could well mean increasingly higher wages for more workers.

But three factors should be noted that temper this good news.

First, retail sector jobs are often thought of as replacing traditionally high-paying manufacturing jobs. And to some extent they are. The authors point out that the two sectors have similar pay structures, but that manufacturing has a higher base pay. The movement to modern retailers may be increasing wages within the sector, but it doesn’t look large enough to replace manufacturing level wages. According to data from the authors, the mean hourly wage in the retail sector was just under $17 dollars while the average for the manufacturing sector was about $24.

Second, the growth in wages might peter out. The movement from mom-and-pop stores to big box retailers has boosted wages in the sector, but how much longer can that movement boost wages?

Finally, higher wages for more workers in the retail sector assumes these companies will continue to grow in the future. That’s definitely not a given. The authors point out that manufacturing jobs have and remain susceptible to increased global competition and that service sector jobs may become more automated. But as Matt Yglesias at Vox points out, the retail sector isn’t free from technological dislocation. The three authors point out that the Internet only accounts for 5 percent of current retail sales. But that doesn’t preclude an increase in that number.

Rising wages for low-income and middle-income workers in the retail sector certainly should be celebrated, but depending on the growth of one sector to solve the overarching problem of stagnant to falling wages across most sectors of our economy would be unrealistic. Economists and policymakers should be aware of the changing composition of pay both between sectors and within them as we contemplate the future of American wages.

July 28, 2014


Wage Stagnation

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