Do Large Modern Retailers Pay Premium Wages?
GAICIL Insights
The standard lament runs like this: good factory jobs are vanishing, replaced by minimum-wage work stocking shelves.1 Do Large Modern Retailers Pay Premium Wages?, by Brianna Cardiff-Hicks, Francine Lafontaine and Kathryn Shaw, checks the lament against worker-level panel data and finds a twist. Wage rates in retail rise markedly with firm size and establishment size. Large chains and large establishments pay considerably more than small mom-and-pop stores.
The authors decompose the premium carefully. Controlling for worker fixed effects halves the wage increases with size, suggesting better workers sort into larger firms. Higher-ability workers get promoted to manager positions, which pay more. Managers, mostly first-line supervisors, make up a large fraction of the retail workforce and earn about 20 percent more than other workers. Large firms and establishments provide access to managerial ranks and hierarchy.
The conclusion overturns the nostalgic narrative. The growth of modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional retail. Retail still pays considerably less than manufacturing. Yet as manufacturing has declined, the growth of modern chains has raised retail wages and created more promotion opportunities, particularly for more able workers. The big-box store, often cast as the villain, turns out to be a career ladder.
The deeper story is about process innovation. Modern retail firms are defined by modern products and processes that make large chains possible: inventory systems, data-driven management, standardized operations. Process enables scale, and scale enables hierarchy and higher wages. Artificial intelligence is the next wave of retail process innovation, with applications in demand forecasting, pricing, inventory and customer service. If AI strengthens the advantages of large, well-managed retailers, the paper suggests the wage consequences may be friendlier than commonly feared.
That challenges a reflex in policy debates. Large firms often draw suspicion. In retail, this paper shows large firms pay more, promote able workers and offer career ladders small establishments cannot. Policies that hinder the growth of large modern retailers in the name of protecting small businesses could limit wage growth and promotion opportunities for the very workers they aim to help. Protecting the corner store can mean protecting lower pay.
Sorting cautions against easy conclusions, though. Part of the premium reflects returns to ability: large firms hire and promote more able workers. Those not hired by large firms may not benefit. As AI reshapes retail jobs, the distribution of gains will depend on access to employment in modern firms and on training that lets workers climb the hierarchy.
AI may also redraw the ladder itself, and this is the paper's most important warning for the future. If AI automates supervisory tasks, first-line supervisor positions might shrink, removing the promotion rung the paper identifies as a source of higher pay. Alternatively, AI could make supervisors more productive and broaden their responsibilities, raising the value of managerial jobs. Technology's effect on retail wages runs partly through the career ladder, and assessments of AI's impact should watch the middle rungs closely. The number of paths to supervisor is the figure to watch.
The study cites related matched employer-employee research showing retail provides good jobs to many workers in upper skill quintiles who land jobs at higher-quality firms. Together, the evidence challenges the view that retail growth necessarily means declining job quality.
Seen whole, the paper's message is plain: firm organization matters for workers. Large modern retailers, built on process innovation, pay premium wages and offer promotion opportunities. Their spread improved retail jobs as manufacturing declined. As AI powers the next wave of process innovation, policies that let modern firms grow, while helping workers build skills to advance within them, offer the most promising route to better jobs in one of the economy's largest sectors.
One last test: the most important labor statistic in AI-era retail may be the number of rungs on the ladder, and whether technology adds rungs or saws them off.
Introduction
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.
Takeaway
Over the last forty years, modern retail firms, those with the modern products and processes that support large chains, have become a large segment of the retail sector. Using worker-level panel data on wage rates, we show that the spread of these chains has been accompanied by higher wages. Large chains and large establishments pay considerably more than small mom-and-pop establishments. Moreover, large firms and large establishments give access to managerial ranks and hierarchy, and managers, most of whom are first-line supervisors, are a large fraction of the retail labor force, and earn about 20 percent more than other workers. A good part of these wage gains are returns to ability – large firms and large establishments hire and promote the more able. The retail sector pays considerably less than manufacturing, but as the manufacturing sector has declined over time, the growth of modern retail chains has increased retail wages and provided more promotion opportunities, particularly for the more able worker.1
Holzer, Lane, Rosenblum and Andersson (2011) use employee-employer matched data on individual workers for 1992 to 2003 to show that retail “now provides good jobs to many workers in the fourth and fifth quintiles of skills who obtain jobs in higher quintiles of firm quality.” In their work, worker skills are measured as individual fixed effects and firm quality is measured using firm fixed effects.
Notes
- Brianna Cardiff-Hicks, Francine Lafontaine & Kathryn Shaw, Do Large Modern Retailers Pay Premium Wages?, 68 ILR Rev. 633 (2015), https://doi.org/10.1177/0019793915570877. Takeaway source: Conclusion, reproduced from a free author or repository copy (working-paper version). ↩
Cite as: Brianna Cardiff-Hicks, Francine Lafontaine & Kathryn Shaw, Do Large Modern Retailers Pay Premium Wages?, 68 ILR Rev. 633 (2015), https://doi.org/10.1177/0019793915570877
Header image: Rimi supermarket at Kaunas Mega mall, 2025 aisle.jpg by Bdx, CC0, via Wikimedia Commons.
