NEWS YOU CAN USE: Not Everyone Can Work For CostCo.

This is what economists call an efficiency wage. Paying workers more than the going market rate for their skill level can bring a lot of benefits to your company. You get lower turnover and, arguably, better on-the-job performance. This springs from four sources:

Paying workers more than other workers in their skill class makes them feel warmly toward you. Humans are hard-wired for reciprocity: When someone gives us something, we feel obligated to give them something in return. So if you treat your employees extra-well, they feel obligated to treat you extra-well.

Workers know that if they lose this job, they are likely to end up with a job that pays less. They are thus highly motivated to keep this job.

Employers get to be choosier about who they hire.

The wage attracts people with better skills.

As you can see, this concept is very exciting. But that excitement can get out of control; it frequently leads hot-blooded young progressives to conclude that if we just paid everyone more, all the companies would be more profitable! This is folk wisdom akin to believing that everyone should buy a lottery ticket because your cousin won $1 million that day.

Here’s what they are missing: Efficiency wages only work because the workers are getting more than they could make elsewhere. If everyone was paying the same wages, all the benefits to the employer would disappear.

Personally, I won’t be satisfied until everyone is making more than the median income.