In March 2025 Costco signed a new labour agreement: a minimum starting wage of $20 an hour in the US and Canada, and an average above $31 an hour. Top-of-scale staff got a dollar immediately, with another dollar in March 2026 and again in March 2027. First-year employees gained paid vacation; 30-year employees can take up to six weeks3.
Chief executive Ron Vachris said the deal "reflects our continued commitment to provide industry-leading pay and benefits for our employees".
In the same briefing, chief financial officer Gary Millerchip said the agreement would create a mid-single-digit headwind to selling, general and administrative expenses3.
Those two statements do not contradict each other. They are the two halves of a calculation most companies only ever do half of.
The 2006 article and the question it posed
Wayne F. Cascio, a professor of management at the University of Colorado at Denver, wrote "The High Cost of Low Wages" for the December 2006 issue of Harvard Business Review, drawing on his academic comparison of Costco with Wal-Mart's Sam's Club.
His argument fits in one line: stingy pay and benefits do not necessarily translate into lower costs in the long run1.
This is not a moral argument. It is an accounting one. The wage bill sits on the payroll where everyone can see it. The churn bill is scattered across five or six places: recruiting, training, the productivity gap while a new hire comes up to speed, the errors made during that window, and hardest of all to price, the process knowledge that lived only in the head of the person who left.
Companies manage the first line tightly and the second line barely at all.
Twenty years later, the numbers in the filing
Costco's annual report to the US Securities and Exchange Commission for the year ended 31 August 2025 states the following, in the company's own words2:
- 341,000 employees worldwide, of whom 223,000 are in the United States.
- Approximately 95% work in membership warehouses and distribution channels.
- The starting wage was increased by $0.50 to at least $20.00 an hour for all entry-level positions in the US and Canada.
- The average hourly rate for US hourly employees at the end of 2025 was approximately $32.00.
- Retention in the US and Canada in 2025 was approximately 94% for employees with at least one year of service.
That 94% deserves a long look. Among people past their first year, roughly one in sixteen leaves in a year. In retail, that is rare.
The calculation anyone can run, with their own numbers
The useful part of the Costco story is not the $32. It is how the question is framed. You can do this tomorrow morning in a spreadsheet, with data you already hold.
Step one. Count leavers over the past 12 months in one specific role — one role, not the whole company. Say, shop floor sales staff.
Step two. For each replacement, add four items: cost to recruit (advertising, interviewer time), cost to train (the trainee's pay plus the trainer's), the productivity shortfall until the new hire reaches standard, and the cost of errors made during that window.
Step three. Multiply by the number of replacements. That is the annual churn bill for that role.
Step four. Divide it by the headcount in that role and by 12. You now have a per-person, per-month figure for what churn is costing you.
Step five. Compare that to the pay rise you declined at the last review.
The calculation does not guarantee a result that favours paying more. For plenty of roles it will not. But then you are declining a rise on the basis of a number rather than a habit.
The part copycats leave out
Costco can pay what it pays because the business model allows it, and most companies do not have that model.
It sells warehouse-style with a very small range compared with a conventional supermarket, which means enormous revenue per employee. With net sales of $269.9 billion in fiscal 2025 and 341,000 employees, that is roughly $790,000 of revenue per head2. It also collects membership fees, revenue that is almost entirely margin.
Copy the wage without the structure and you copy only the cost.
And Costco's own CFO said it plainly: the new deal is a cost headwind. There is no free lunch here. What Costco does is pay that price deliberately, with the numbers in front of it, inside a model that can carry it.
Three questions before you quote Costco in a pay proposal
First, is this a role where experience actually changes productivity? If a three-year employee is no better than a three-month employee, the retention argument weakens considerably.
Second, is your local labour market tight? A high wage buys stability when workers have alternatives. Where they do not, it buys less.
Third, have you measured your cost of turnover, or are you estimating it? If you have not measured it, measure it before asking for budget. A proposal built on your own company's numbers beats any Harvard article.
