Monday, October 24, 2005

Wal-Mart and the Numbers

One of the staple pro-Wal-Mart arguments is that the store creates jobs and hence contributes to the economic betterment of an area. However, critics continually point out that job creation cannot be viewed in a vacuum, that the Wal-Mart jobs added need to be balanced with those jobs lost due to store closings or cutbacks. And even when Wal-Mart doesn’t cause direct jobs losses it, by offering low paying, low-benefit employment, creates a race-to-the-bottom atmosphere where competitors slash their own wages and health care packages in order to stay afloat.

The question then becomes what are the true costs Wal-Mart’s often touted low prices? More specifically, what is the retailer's net effect on employment, wages and the overall economic situation of a particular area?

In a new report, David Neumark, Junfu Zhang, and Stephen Ciccarella, fellows at the non-partisan Public Policy Institute of California, begin to answer these aforementioned questions in their abstract [emphasis added]:

In the retail sector, on average, Wal-Mart stores reduce employment by two to four percent ... Overall, there is some evidence that Wal-Mart stores increase total employment on the order of two percent, although not all of the evidence supports this conclusion. There is stronger evidence that total payrolls per person decline, by nearly five percent in the aggregate, implying that residents of local labor markets earn less following the opening of Wal-Mart stores.
The report, entitled “The Effects of Wal-Mart on Local Labor Markets,” ironically, as Jonathan Rees points out, is being submitted to a conference sponsored by Wal-Mart and intended to portray the company’s positive affect on the U.S. economy. Also interesting is the fact that the authors received store data directly from Wal-Mart and hence believe their findings to be more accurate. To be fair, they do question certain earlier Wal-Mart-critical papers (e.g. the Penn St. poverty study) for relying on poor data/methodologies. However, Neumark, et. al, come to many of the same conclusions and do so using Wal-Mart’s data and what they see as improved economic models.

While the economics is way beyond me, these conclusions should be clear to any lay person [again, emphasis added]:

The evidence is, on balance, more consistent with the claims of critics of Wal-Mart, although questions remain. In the retail sector, the representative Wal-Mart store, which is open about eight years in our sample, reduces employment by two to four percent. There is some evidence that payrolls per worker also decline, by about 3.5 percent, but this conclusion is less robust. Either way, though, retail earnings fall. Looking at total employment, some of the evidence, but not all of it, points to employment increases on the order of two percent. At the same time, there is stronger evidence that total payrolls per worker and per person decline, by about 2.5 and 4.8 percent, respectively, implying that residents of a local labor market do indeed earn less following the opening of Wal-Mart stores.

Finally, we find clear evidence of adverse effects of Wal-Mart stores on retail employment, total employment, and total payrolls per person in the South, where Wal-Mart stores are most numerous on a total and per capita basis, and where they have been open the longest
Again, to be fair, the authors mention that Wal-Mart may result in lower prices and that this may offset, at least partially, the demonstrably lower earnings after Wal-Mart comes to town. However, despite this caveat the report shows that our critiques and those of other skeptics are right: when Wal-Mart comes to town there is considerable collateral damage and the longer the store stays the worse these wounds become. This is something all politicians and neighborhood residents should fully understand before giving the green light to the big box from Bentonville.