Why Costco supports a minimum-wage hike

President Barack Obama's recent call for an increase in the federal minimum wage has divided business executives, economists and others on the issue. Some think boosting wages hurts a company's bottom line and forces it to hire fewer people.

But there's also the argument that higher wages mean people stay in their jobs longer, which in turn can reduce costly employee turnover.

On Tuesday, Democratic Senators Tom Harkin of Iowa and George Miller of California introduced a measure that would raise the hourly minimum wage from $7.25 to $10.10 -- and add an annual adjustment to keep pace with the cost-of-living index.

Several business owners have applauded the so-called Fair Minimum Wage Act of 2013, most notably Craig Jelinek, the president and CEO of big-box warehouse store Costco (COST).

In a statement issued by the Business For a Fair Minimum Wage organization, Jelinek notes that even though Costco's starting hourly wage is $11.50, the company still keeps its overhead costs low.

“An important reason for the success of Costco’s business model,” he adds, “is the attraction and retention of great employees. Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty.”

Costco has been under close Wall Street scrutiny for some time, with some analysts calling on the company to scale back employee benefits and wages. But it has apparently ignored such requests while its share price continues to rise.

In a recent interview with The Los Angeles Times, Crowell, Weedon & Co. equity analyst James Ragan said Costco's approach to its employees, “especially compared to competitors, has definitely been positive. It has a strong company culture at the employee level.”

Wages, working conditions and morale were issues brought up by protestors during recent demonstrations against a Costco competitor, Wal-Mart (WMT). And while most retailers probably won't copy Costco's approach and declare themselves in favor of a minimum wage hike, the company seems to be happy with its current business model regarding its employees.

“We run our business the way we think it should be run, and we’ve done pretty well doing it,” Costco's chief financial officer, James Galanti, told the Times last year. “When tasked with looking at all the costs, we tend to not look at how do we reduce expenses. . . There are things -- like taking health care out --  that we’re not willing to touch.”

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