The debate about the appropriate level at which to set the federal minimum wage has reawakened again, prompting various observers to pose arguments for or against raising the current rate. According to one columnist who opposes raising the minimum wage, the key question really centers around the positioning adopted by various retail employers.

The comparison of Subway with Zingerman’s, a specialty deli from Michigan with a thriving mail-order business, provides a central example. Zingerman’s pays its sandwich and bread makers far more than the minimum wage. It seemingly can do so largely because its prices are high enough—such as $14 for a Reuben sandwich—that it earns strong margins. In contrast, for Subway to continue attracting the cost-conscious consumers that make up its target market, it needs to keep its sandwich prices low, which leaves it with little room to pay workers more.

The other example the author cites is Costco. Although this retailer takes a low price position, it also enjoys an uncommon revenue stream in the form of the annual membership fees. As a result, it pays workers a starting hourly wage of $11.50. In this view, the only question to ask when considering whether the federal government should legally increase the minimum wage is whether the companies that pay these wages to employees can afford to pay more.

Discussion Question:

Can retailers afford to increase the minimum wage?

 

Source: Michael Saltsman, The Wall Street Journal, April 19, 2014