Acton Institute Powerblog

Walmart Will Never Pay Like Costco (and Probably Shouldn’t)

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In light of the ongoing discussion over fast-food wages, I recently wrote that prices are not play things, urging that we reach beyond the type of minimum mindedness that orients our imaginations around artificial tweaking at the bottom instead of authentic value creation toward the top. Prices don’t equip us the whole story, but they do tell us something valuable about the needs of others and how we might maximize our service to society.

But though I have a hearty appreciation for the role that low-wage employers like McDonald’s play — due in large part to my 5-year stint working for The Ronald — I’m also grateful that other companies like Costco are able to provide higher wages to many low-skilled workers.

When we observe such differences — one prosperous company paying $7 per hour while another pays $12 — it can be easy to get worked up, pointing our fingers at greedy executives, idols of efficiency, unwise allocation of company funds, etc. Yet while any assortment of these drivers may indeed contribute to how wages are set, and though executives bear heavy moral responsibility on such matters, it’s helpful to remember that (1) we’re greatly limited in understanding the books of the companies we critique, and (2) executives aren’t the only ones influencing prices.

Over at Bloomberg, Megan McCardle does a marvelous deep-dive on this very sort of thing, starting with a comparison of Costco and Walmart wherein she ponders why the former offers higher wages than the latter.

A summary:

Upper-middle-class people who live in urban areas — which is to say, the sort of people who tend to write about the wage differential between the two stores — tend to think of them as close substitutes, because they’re both giant stores where you occasionally go to buy something more cheaply than you can in a neighborhood grocery or hardware store. However, for most of Wal-Mart’s customer base, that’s where the resemblance ends. Costco really is a store where affluent, high-socioeconomic status households occasionally buy huge quantities of goods on the cheap: That’s Costco’s business strategy (which is why its stores are pretty much found in affluent near-in suburbs). Wal-Mart, however, is mostly a store where low-income people do their everyday shopping.

To demonstrate these differences, McCardle provides the following graphic:

(*Walmart figures include Sam’s Club, which despite having more stores, is much less profitable than Costco.)

Her conclusion:

This is not actually just a piece on how Wal-Mart can only pay low wages — I don’t know how much more they could afford to pay before they started to lose customers (or the board kicked the CEO out), and neither does anyone else writing about this. I’m actually interested in the larger point: the way that things most people rarely think about — like the number of products that a store carries — have far-reaching effects on everything from labor, to location, to customer service and demographics. We tend to look at the most politically salient features of the stores where we shop: their size, their location, the wages that we pay. But these operations are not so simple. They are incredibly complex machines, and you can no more change one simple feature than you can pull out your car’s fuel injection system and replace it with the carburetor from a 1964 Bonneville.

Alas, Walmart will never pay like Costco because Walmart is not Costco.

But more importantly, the people involved in each, from the employees to the executives to the suppliers to the customers, are no less complex. We should be wary of pushing our heavy marble rolling pins over the particularities of productive companies, but we should be just as wary of how such whim-wielding represents a similar flattening of our approach to human needs and human service.

Read McCardle’s full post here.

Joseph Sunde is an associate editor and writer for the Acton Institute. His work has appeared in venues such as The Federalist, First Things, The City, The Christian Post, The Stream, Charisma News, Juicy Ecumenism, Ethika Politika, Made to Flourish, and the Center for Faith and Work. Joseph resides in Minneapolis, Minnesota with his wife and four children.

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