Do Large Modern Retailers Pay Premium Wages?

With malls, franchise strips, and big-box retailers increasingly dotting the landscape, many are concerned that U.S. middle-class jobs in manufacturing are being replaced by minimum-wage jobs in retail. Retail jobs have spread, whereas manufacturing jobs have shrunk in number. The authors show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when they control for worker fixed effects, suggesting that better workers are sorted into larger firms. Also, higher-ability workers are promoted to the position of manager, which is associated with higher pay. The authors conclude 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.