With minimum wage in the news, Costco got a lot of attention for paying their employees $17 per hour, while Walmart only pays about $9 per hour. Costco immediately became a progressive darling, and you started hearing calls to raise the minimum wage to $15 an hour. The justification for this being, to insure that low skill workers can earn a living wage. I will give some credit to the left, they are very good at inventing new terms, I mean, who can be against a living wage right? Of course living wage just means a government mandated minimum wage, and a minimum wage does not guarantee that a low skill worker can earn a living. What it does guarantee however, is that many low skilled workers won’t be able to earn anything at all. This is a truth that becomes even more painfully evident when looking at why Costco is able to pay their employees almost twice as much as Walmart.
Costco generated $21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Sam’s Club/Walmart. Without looking at any other data, Costco’s employees are twice as productive as Walmart’s, so I would say they deserve the higher pay.
The truth is Costco is not doing anything innovative or different from Walmart, all they do is hire skillful employees with higher productivity and pay them what they are worth. An average Walmart employee would not be able to attain a Costco job, which is exactly what I am saying. Forcing Walmart to pay the same as Costco through a minimum wage would not insure higher wages for low skill workers. Walmart would just hire more productive workers whose productivity would justify the higher wage, just like what Costco currently does. All that a minimum wage would do is insure that low skill workers can not earn any wage at all, or even more importantly acquire and develop skills and experience on the job.
How about for consumers, which business model is better for them? Well, that can depend on a lot of variables, your family size, your proximity to the stores, your diet, ect. Walmart for instance has 8,500 locations with 2 million employees while Costco only has 338 locations with about 67,500 employees. If you do not live next to a Costco, the added cost of driving, membership fees as well as the requirement to buy things in bulk can cut into any savings you may have achieved by shopping at Costco rather than Walmart. Even when buying in bulk some products like produce are still more expensive on a per unit basis at Costco. Both business models have their pros and cons. This is not a criticism of either, but more of a criticism of the people who think they know which system is better for you, and intended to force that system on you and others.
