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What they did

Costco committed to above-market wages, comprehensive benefits, and internal promotion in a low-margin retail business where every other competitor treats labor as the primary cost to cut. As of the March 2025 Teamsters contract, starting wages are $20/hour for assistants and $21/hour for clerks; top-of-scale clerks earn $31.90/hour and top-of-scale assistants earn $30.20/hour (confirmed, Fortune/CBS News, March 2025). Average hourly pay across the workforce is approximately $30-31 (confirmed; Seattle Times citing Costco statements, end of 2024). The retail industry average is approximately $24.57/hour (confirmed, Bureau of Labor Statistics, August 2024).

The structural prerequisite: the membership model

The high-wage strategy only closes financially because of how Costco makes money. This is not a guardrail; it is the foundation.

Costco’s membership fees account for approximately 65-73% of the company’s operating income while representing only about 2% of total revenue. In FY2024, Costco collected approximately $4.8 billion in membership fees against total revenue of $249.6 billion and total operating income of approximately $9.285 billion (confirmed, Motley Fool citing Costco FY2024 annual report; multiple analyst sources converge on the 65-73% range; exact figure varies by methodology). Merchandise operations run near break-even. The membership fee is the profit center.

Without that fee structure, paying $30+/hour in a low-margin retail operation does not close mathematically. Zeynep Ton’s “Good Jobs Strategy” framework makes this explicit: “Just treating workers better will not boost a company’s competitiveness. A radically different operating system is needed.” (confirmed, MIT Sloan/HBR, 2014/2017). The operating system here includes the membership fee structure, extreme SKU discipline (roughly 4,000 SKUs vs. 30,000+ at a typical retailer), bulk-format purchasing, and internal promotion culture working together as a system, not wages added onto an otherwise conventional retail model.

The policy implication is narrower than it first appears. Costco does not demonstrate that paying workers well closes the math in retail. It demonstrates that a specific integrated system, where customer loyalty is the explicit revenue mechanism, operational complexity is radically constrained, and volume is sufficient to fund near-zero merchandise margins, can sustain wages significantly above industry average. Those are not the same claim.

Why it worked

The membership model creates an incentive structure that makes the high-wage strategy rational.

Revenue depends on membership renewals, not on merchandise margin. Costco’s US/Canada renewal rate for FY2025 was 92.3%; the global rate was 89.8% (confirmed, Costco FY2025 annual report, cited by 24/7 Wall St. and Detroit News). That means customer loyalty is the actual product. Loyal customers require consistent, competent service. Consistent service requires stable, experienced staff. Stable staff requires wages and benefits that make leaving unattractive.

Employee turnover runs approximately 8% versus a retail industry average of approximately 60% (plausible; widely cited in secondary literature including The Economist, HBS Institute for Business in Global Society, and Zeynep Ton’s research; the 60% retail figure was not traced to a specific BLS JOLTS publication in this research, label as plausible). Replacing an entry-level employee costs 33-50% of their annual salary. The arithmetic favors low turnover.

As a historical baseline: a 2006 Cascio study found Costco’s annual turnover cost at approximately $244 million vs. Sam’s Club’s approximately $612 million, and Costco’s operating profit per hourly employee at approximately $21,805 vs. Sam’s Club’s approximately $11,615 (confirmed as historical benchmark; Cascio, Wayne F., “Decency Means More Than ‘Always Low Prices’,” Academy of Management Perspectives, vol. 20, no. 3, August 2006, pp. 26-37). These figures reflect 2004-2005 data and are 20 years old. No peer-reviewed study replicating the same methodology for current data was found in this research (unknown). They are cited here as historical baseline only, not as current evidence for the argument.

From current public financials, a rough derived figure: FY2024 operating income of approximately $9.285 billion across an estimated 316,000+ employees yields roughly $29,000 in operating income per employee (derived from Costco investor relations and 10-K estimates; this calculation is approximate and not attributed to any published comparison study).

Lower turnover drives lower replacement cost. That part of the mechanism is structurally sound. But it operates inside the membership fee structure; it does not replace it.

Guardrails

Two structural features keep the model from being extracted by short-term pressure:

1. Internal promotion culture. Nearly all warehouse managers are promoted from within (plausible, widely cited in secondary sources; specific primary citation not confirmed in research file). Leadership has direct experience of floor-level conditions. Abstraction from worker reality, the usual precondition for wage-cutting, is harder to sustain culturally when the people making decisions worked the floor.
2. Executive pay historically restrained. Jim Sinegal’s salary was a fraction of retail CEO peers during his tenure (1983-2012). This held the shared-sacrifice norm credible. Post-Sinegal executive pay has increased, and the structural guardrails above are more durable than any individual’s restraint. Wall Street pressure to cut wages has been consistent and permanent; the internal promotion culture is the structural defense, not personal virtue.

Where it broke (or where it’s under strain)

Wall Street pressure: permanent and unresolved

Analysts have consistently pushed for higher margins by cutting wages or reducing benefits. Costco has resisted, but the pressure never stops. It is a governance risk at every earnings call. The model’s durability under this pressure required roughly 20 years of founder-level commitment from Jim Sinegal before the market validated it broadly (addressed in the North Star verdict below).

The 2024-2025 Teamsters dispute

The “good employer” framing and active adversarial collective bargaining coexist at Costco. Both are confirmed.

During 2024 national contract negotiations, Costco rejected approximately 98% of Teamsters proposals (confirmed, International Brotherhood of Teamsters press release, December 2024). The Teamsters filed unfair labor practice charges against Costco in December 2024, alleging Costco expelled union representatives from stores, harassed workers for wearing union attire, and changed locks on union bulletin boards (confirmed, Teamsters, December 2024). In January 2025, 85% of Teamsters members voted to authorize a strike (confirmed, Teamsters, January 2025). A tentative agreement was reached February 1, 2025, hours after the previous contract expired, averting a strike covering approximately 18,000 workers in six states (confirmed, CNN Business, February 2025). The settled contract included raises bringing top-of-scale clerks to $31.90/hour, plus a 22% boost in pension contributions (confirmed, Teamsters, March 2025).

This dispute does not falsify the high-wage claim. The settled contract confirms wages significantly above industry average. But it complicates the “good employer” narrative. Paying above-market wages relative to industry does not mean frictionless labor relations. Costco management bargained aggressively, filed against union organizing activity, and reached agreement only under strike threat. That is a different picture than the internal-promotion culture framing implies.

Labor law violations and litigation

Costco has a documented record of labor violations. Good Jobs First Violation Tracker lists 104 records and approximately $98.4 million in total penalties since 2000 (confirmed, Good Jobs First Violation Tracker, violationtracker.goodjobsfirst.org/parent/costco).

Specific confirmed violations include:

• In 2025, California’s Department of Industrial Relations cited Costco, Ryder Last Mile, and Mega Nice Trucking jointly for $868,128 in misclassification penalties involving 58 delivery drivers; investigators found falsified payroll records (confirmed, California DIR press release, 2025).
• In 2015, a federal appeals court found Costco receiving managers were misclassified as exempt and owed overtime (confirmed, Sommers Schwartz citing Sixth Circuit ruling, 2015).
• A class-action gender discrimination case settled with payments up to $300,000 per affected worker for women denied promotions to management positions (confirmed; settlement amount for the class aggregate not specified in the research file).

High wages relative to industry average do not equal full compliance with labor law. The violations record is material to a North Star assessment. A direct comparison of Costco’s violations record to Walmart’s or Amazon’s is not available in the research file and is not made here.

Physical working conditions

Warehouse work at Costco involves heavy lifting, repetitive motion, and fast pace. Injury types include slips, falls, repetitive strain, and forklift incidents. COVID-era criticism of working conditions is documented in secondary sources but specific OSHA citations to Costco from that period were not confirmed in this research (unknown; specific citations not found). The $98.4 million violation total likely includes some OSHA penalties, but the breakdown by violation type was not available.

Survivorship and selection bias

This case study examines a survivor. There are no documented cases of retailers that explicitly attempted a Costco-style high-wage strategy without the membership model and failed as a direct result (unknown, absence of evidence, not evidence of absence). This means the case cannot demonstrate that high wages alone drive the outcome. What it can demonstrate is that the full integrated system, membership fees as profit center, SKU discipline, bulk format, internal promotion, founder-level commitment against short-term margin optimization, works at the scale and duration Costco has achieved.

Zeynep Ton’s “Good Jobs Strategy” cites Mercadona, QuikTrip, Trader Joe’s, and Mud Bay as high-wage retailers sustaining above-market wages without a membership model (confirmed, MIT Sloan and HBR). In each case, some other margin-preserving structural constraint operates in place of membership fees, extreme SKU discipline and private label at Trader Joe’s, regional density and SKU discipline at Mercadona (plausible analogy; the structural constraint differs from Costco’s but appears analogous in function). These examples suggest membership is not the only possible structural prerequisite, but some form of operational constraint appears necessary. The specific question of whether the Costco high-wage model can work without any such constraint has not been tested in a documented comparable case at scale (unknown, structurally unresolvable without a controlled comparison).

Scale dependency

With annual revenue of $269.9 billion (FY2025, confirmed, Costco investor relations), Costco operates at a scale most retailers cannot approach. Supplier leverage, membership density, and per-unit cost structures depend on that volume. Smaller retailers attempting a similar model face higher structural friction, not because they have not adopted the right strategy, but because the membership revenue prerequisite is harder to build from a smaller base.

Market verdict

Rewarded, significantly and over multiple time horizons.

Costco’s 10-year total return through approximately December 2025 was approximately 625%, equivalent to approximately 21.5% annualized (confirmed, Motley Fool citing Nasdaq.com data, December 2025). The S&P 500 returned approximately 183% (approximately 13.6% annualized) over the same period (confirmed, same source). A $1,000 investment in Costco 10 years ago was worth approximately $6,400 versus approximately $2,800 for an S&P 500 index investment.

Costco’s 20-year total return was approximately 2,991%, equivalent to approximately 18.7% annualized (confirmed, FinanceCharts.com COST total return data). No 20-year retail sector index comparison figure was found in this research; the five-year total return ranks in the top 10% of the retail industry (plausible; multiple analyst sources; no single citable benchmark index comparison for the 20-year retail sector confirmed).

Sam’s Club raised starting pay from $15 to $16/hour, effective November 2024, and raised wages for nearly 100,000 employees (confirmed, HR Dive/Fortune/CBS News, September-November 2024). Media coverage, including Fortune and CNN, headlined this directly as competing with Costco (confirmed, Fortune headline: “Sam’s Club announces starting pay increase to compete with Costco”). Sam’s Club CEO Chris Nicholas said he hoped higher pay would encourage employees “to stay for a long tenure, rather than jump ship to competitors”, but did not name Costco by name in the quoted statements found in this research (plausible; strong competitive inference; media framing names Costco explicitly; no Sam’s Club executive was quoted directly attributing the increase to Costco).

The market took approximately 20 years to validate the model broadly. Sinegal led the company from 1983 to 2012, and Wall Street pressure to cut wages was consistent throughout his tenure. As of February 2026, Costco’s market capitalization is approximately $449-452 billion (confirmed, companiesmarketcap.com).

Policy environment

The model functions when workers have real options, tight labor markets, portable benefits, low switching costs. When workers cannot leave, the turnover cost discipline weakens and the employer’s financial incentive to maintain wages softens.

The model also requires that the structural prerequisite, a membership fee structure funding the bulk of operating income, be in place before high wages are viable. Policies that would allow the model to scale more broadly would need to address both sides:

• Portable benefits (healthcare not tied to employer) reduce the cost of worker mobility, keeping the turnover pressure on employers real.
• Antitrust enforcement in retail keeps the membership-model market competitive; consolidation removes the incentive to differentiate on worker treatment.
• Wage floor policy reduces the cost advantage of low-wage competitors, making Costco’s model less exceptional and more standard.
• Patient capital and governance reform (longer holding periods, institutional ownership, executive compensation tied to long-horizon metrics) would reduce the pressure on boards to optimize for short-term margin, which is what the 20-year validation lag shows is necessary.

North Star verdict

Partial reinforcement, with a critical structural condition attached.

security -> choice -> competition -> shared gains -> more security

Workers who can afford to leave force Costco to compete for them. That competition produces wages and benefits that reduce insecurity. Lower insecurity produces better retention, lower replacement costs, and a stronger business. The business sustains the wages.

The loop runs at Costco, conditional on the structural prerequisites being in place. The membership fee structure is not a policy choice sitting atop the high-wage model. It is the economic mechanism that makes the model viable. Without it, or without an equivalent margin-preserving operational constraint, the math does not close.

The second honest constraint is governance. The Costco model required approximately two decades of founder-level commitment against sustained investor pressure before the market validated it. That is not a cultural lesson or a question of will. It is a capital market and governance argument: the model needs patient capital, insulation from short-term earnings pressure, and leadership that does not optimize for next quarter. Those conditions are not common. The policy implication is not “other companies should emulate Costco’s culture.” It is that structural supports, governance reform, patient institutional capital, executive compensation tied to long-horizon outcomes, matter for replication. Cultural will is not the constraint the Teamsters dispute, the Wall Street pressure record, and the 20-year validation lag actually point to.

The case is real. The lesson is specific: design the system so customer loyalty is the revenue mechanism, constrain operational complexity to preserve margin, maintain founder-level commitment to not optimizing short-term, and the high-wage math can close at sufficient scale. That is a meaningful finding. It is not a generalizable wage policy template.

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