wmartIn 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.


  • Paul Brin

    Cou;d we see that chart with Sam’s Club and Costco?

    • Dylan Pahman

      Great question. I had the same thought.

    • Joseph Sunde

      Great question. I just added the following note to the
      chart, which is made in in the original post: “(*Walmart figures include
      Sam’s Club, which despite having more stores, is much less profitable than
      Costco.)”

      Of course, that still doesn’t give us the specific line-up we’re looking for. I’ve looked around for this type of side-by-side comparison, but haven’t found anything too detailed, so I would be eager to see something if other readers know of such a chart.

      I have seen plenty of folks speculate that Sam’s Club’s wages/benefits are part of the /reason/ that Costco is winning (http://hbr.org/2006/12/the-high-cost-of-low-wages/ar/1), and though I could certainly see that being the case, many of these types of analyses also end up lumping Sam’s Club and Walmart together via assumptions rather than data. It may also be worth noting that a difference between Costco and Sam’s Club is that Sam’s Club /is/ related to Walmart.Given that these stores are now being built side-by-side more and more frequently, that will certainly have an impact on your pool of potential customers and hires in the area.

  • pjmerc

    Too bad that so very many people, due to circumstances beyond their control, HAVE to work at a place that would sooner fire you than give you more hours.
    While we could get into the whole societal notion about wager earners having to work 2 or more jobs just to make ends meet, I don’t see Wallyworld doing a darn thing but “offer” their employees the bare minimum. They are part of the reason that people are low wage earners and can only shop at Walmart.
    With Obamacare ready to pounce, how many more people will become low wage earners because their companies chose to (or have to) cut their hours, rather than pay for coverage?

  • Kenneth James Abbott

    So if we look at it in that light, you could even go so far as to say that Costco is keeping families unemployed by hiring fewer than they could hire.

    The truth is, it’s none of our business if they want to hire one employee per store and pay him half a million per year, but all the same….