Wal-Mart: Always low prices? Or always low wages?

    From the discussion of Wal-Mart that we had in class, it was odd to see a company that so many loves thrive from low wage labor.  On the outside looking in, it is easy to be blinded by the many benefits Wal-Marts offer, missing some important underlying issues that employees face  in leading to its success.  One of these issues is low employee pay, in which Wal-Mart exploits in route to profits.

Wal-Mart is a highly successful multinational establishment that is widely known for always having low priced consumer goods.  Founded in 1962 by Sam Walton in a small town in Arkansas, Wal-Mart is now not only the largest grocery retailer in the United States, but also the largest corporation in the world, employing a total of 2.1 million people.[1]   Having this many employees on its payroll also makes Wal-Mart the biggest private employer in the world as well.  Wal-Mart has a total of 8,500 stores in 15 countries, which includes the companies in other countries that they operate under different names.  In 2009 alone, it spawned $131.58 billion in sales from its grocery operations alone.  In addition, Wal-Mart also owns Sam’s Club retail warehouses throughout the U.S., which ranks second in sales volume among all retail warehouses.

Wal-Mart is a highly-known, billion dollar company, so why do they tend to pay their workers well below the wages of other employees who work for Wal-Mart’s less successful competitors?  “I pay low wages. I can take advantage of that. We’re going to be successful, but the basis is a very low-wage, low-benefit model of employment.”[2]  In fact, this statement from Sam Walton proves that Wal-Mart is using low employee wages to get a leg up on its competitors.  Although this approach to business has been a profitable for Wal-mart, this strategy of success is steering many of its employees that have kids directly to poverty.  In fact, employees receive an average of $6-$7 an hour for 28-40 hour work weeks.[3]  This amounts to about $13,000 a year, which would be a difficult figure to survive on with kids.  In today’s economy, there are many changing factors that can constrain a family’s budget.  For example, some constraints can include the rising costs of gas, acquiring the necessary supplies needed for children to go to school and finding ways to meet mortgage payments in a timely manner.  These things in compilation with the basic necessities, such as the need for food, can greatly take a toll on a family’s income, especially if that income is limited.  So it seems to be a no-brainer why so many of Wal-Mart’s employees with kids are subject to poverty.  Furthermore, a report was conducted by the Democratic staff of the House Committee on Education and the Workforce about the amount of assistance they provided to the public.  This report showed that the government delivered $2,100 in public assistance per Wal-Mart employee, which was in the form of Section 8 housing, reduced-cost lunches and health care for their employees’ children, and tax credits.[4]  In knowing how profitable Wal-Mart is as a business, it seems odd that their workers would need public assistance since Wal-Mart is more than able to adequately pay its workers.

According to an influential American economist, Milton Friedman, the social responsibility of all corporations is to increase their profits to build shareholder wealth.  He believes that if companies had to focus on being socially responsible, they would be more constrained in operations, making them less competitive with other companies who were not following the same social responsibility idea.  Applying this train of thought to Walton’s corporations, Wal-Mart has the social responsibility to increase its profits and put that objective above all else.  This means that Wal-Mart would be in the right by making it their top priority to funnel all of their efforts towards increasing the prosperity of its shareholders.  However, by continuing to act this way would only perpetuate the problem of employee poverty, which is a direct byproduct of Wal-Mart only doing what they can to increase their profits.  Consequently, I believe that acting in a more utilitarian way would properly address what Wal-Mart could do in order to solve this problem in a way that is beneficial for both parties.

Is Wal-Mart right or wrong in deciding to pay their employees subpar wages while they thrive as a corporation?  I contend that enacting the ethical theory of act utilitarianism would help draw an answer to this question.  This ethical theory can be effectively applied to Wal-Mart’s current pay scale for its workers, in order to address what the company should be paying their workers according to act utilitarianism.  Ethics deals with a decision being right or wrong.   Utilitarianism is a consequentialist ethical theory that is considered to be an ethical theory because it deals with whether a person’s actions are right or wrong.  The consequentialist aspect simply informs us that the rightness or wrongness of a particular action is determined only by the type of outcome that comes about because of it.  The initiative of this ethical theory of utilitarianism is that we act to bring about the best outcomes, and depending on if those results are positive or negative establishes whether our actions are morally right or wrong.  So basically this theory is saying that we should clarify our moral judgments on the overall consequences of our acts.  One form of this utilitarianism theory is act utilitarianism, which Milton Snoeyenbos and James Humber discusses in their article “Utilitarianism and business ethics”.  This ethical theory affirms that an act is morally right only if it maximizes utility, or creates the most usefulness to both sides.  So in this case, this would mean that employees would have to be paid in a way that would allow them to prosper above poverty, while Wal-Mart is successful in operations as well.  This theory factors in not only benefits, but harm as well.  If it did not, you can have sides gaining while others are losing.  Furthermore, the combination of benefit to harm after considering all parties potentially affected by the act must exceed the benefit to harm ratio of any of its substitute options.[5]  .

Following act utilitarianism, Wal-Mart’s decision to exploit low employee wages is morally wrong because it does not maximize utility for both parties.  Although Wal-Mart is able to substantially gain from this decision to pay their workers this way, many of its employees are being forced to live in poverty as a result.  So paying the employees the way they do is bad because it is not what’s best for employees, even if Wal-Mart is resulting in high success from it. Existing in poverty is not ideal, having to live in low-income housing in areas that are typically plagued with a high crime rate.  Poverty stricken people are not able to acquire some of the basic needs, such as food, water, clothing and shelter because of their low paying job.  While Wal-Mart makes billions of dollars per year, their average employee per week take home pay is about $250.[6]  Adding up to about $13,000 a year, this is below the $14,000 poverty level for a family of two.[7]  This being the case, before Wal-Mart decided to implement a competitive strategy based on low wages, it should have first laid out all of its options.  For example, they could have looked at how much their employees would take home per year if paid different rates per hour.  They could have used the poverty level figures of income and went from there, in order to ensure they do not short their workers in any way.  They also would have to take into account the options that would affect the company and its employees negatively to have all of the options on the table.  Wal-Mart would then intend to maximize the utility of the company and the utility of all who would be affected by the decision.  Next, they would evaluate how the people involved would be influenced by every option and determine the balance of benefit to harm ratio for each act.  By starting at pay per year and then determining an hourly wage, this would guarantee that the workers would be able to afford the humanly necessities without being constrained economically.  Furthermore, after diligently assessing each act they would finally decide to choose the one that resulted in the greatest total balance of benefit to harm.  Following this ethical theory, Wal-Mart would have acted in a morally right way because both sides would have benefitted.  Act Utilitarianism requires you to carefully consider all of your options ahead of time, that way you can make the best possible moral decision on how to act.


Dec.-Jan. 2008. Web. 1 Oct. 2011. http://www.coverageforall.org/pdf/FHCE_FedPovertyLevel.pdf

“Fortune Global 500 2011: The World’s Biggest Companies – Wal-Mart Stores – WMT.” CNNMoney – Business, Financial and Personal Finance News. 16 Mar. 2007. Web. 26 Oct. 2011. <http://money.cnn.com/magazines/fortune/global500/2011/snapshots/2255.html&gt;.

Frederick, Robert E. A Companion to Business Ethics. Oxford: Blackwell, 2006. Print.

“PBS – STORE WARS: Wal-Mart Business Practices.” PBS: Public Broadcasting Service. June-July 2009. Web. 26 Oct. 2011. <http://www.pbs.org/itvs/storewars/stores3.html&gt;

This entry was posted in Business, Cases (Real World), Equality, Ethics and tagged , , , , , . Bookmark the permalink.

3 Responses to Wal-Mart: Always low prices? Or always low wages?

  1. ALXLIONS says:

    It would be interesting to see how Wal-Mart’s employees income compares to other giants like McDonald’s, Burger King or Taco Bell? Also, I would like to see how Target’s profitability and wages for their employees compares?

  2. Jordi says:

    I suppose a Friedman-supporter who was concerned about working for poverty wages would want the government to raise minimum wage or otherwise change the normal rules of business to free up Wal-Mart and other firms to only concentrate on shareholder value with new, externally-imposed constraints.

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