The Wal-Mart effect: Poison or antidote for local communities?, by Terry J. Fitzgerald and Ronald A. Wirtz, FedGazette, FRB Minneapolis: If you really—we mean really—want to scare the locals next Halloween, here’s an early costume idea for you or your kids: Dress up as Wal-Mart.

Yes, few things strike fear and a healthy dose of controversy into communities as does Wal-Mart, that ubiquitous purveyor of socks, soda, stereos, soap, salami, sweaters and sundry other consumer supplies. The discount chain carries the contradictory titles of most popular retailer in the United States and the entire world in terms of revenue—$344 billion in fiscal 2007—and public enemy number one, particularly in a community sense.

Wal-Mart has been fingered as the source of virtually every conceivable economic ill. It kills jobs and downtowns, say critics, and destroys community character. It’s been accused of discriminating against women, using illegal immigrants, requiring work off the clock and being overly aggressive in stopping the formation of labor unions among its workers.

It’s been blamed for sprawl and traffic congestion, as well as aesthetic offenses. For example, as the company upsizes from discount stores to supercenters in many towns, it often leaves behind an empty shell whose only visitors are the weeds that crop up in the unused parking lot, which might itself be in view of the new store. That new store, critics contend, probably received infrastructure upgrades that Wal-Mart strong-armed from local communities, lest it find a better offer elsewhere. The company adds a final dash of salt to the wound by repeatedly fighting (and mostly winning) property tax assessments on its stores.

Wal-Mart even scares businesses that aren’t direct competitors, at least not yet. Banks, for instance, lobbied Congress hard to keep Wal-Mart from becoming an industrial loan corporation, which, in effect, would have allowed it to offer banking services.

But some argue that the company can be, and often is, a force for good. Wal-Mart’s low prices are hard to dispute, and the biggest benefactors are low-income shoppers. Wal-Mart has been widely lauded for its $4 pharmacy program, which has rippled through drug and pharmacy industries to the delight of consumer advocates.

The company has received considerable attention for various environmental initiatives. It has widely replaced store lighting with energy-saving bulbs and given the bulbs prominent space on store shelves. The company announced in November that it has increased the energy efficiency of its buildings and truck fleets by 15 percent since 2005, and has committed to using solar energy at 22 sites. It also promised to cut solid waste from its U.S. stores by 25 percent by next October. Earlier in the year, the company announced a pilot program with a small number of suppliers (among its 60,000 worldwide) who will start measuring, and hopefully reducing, their carbon footprint.

One corporate entity. So many identities, so many costumes. Cities fight to keep Wal-Mart out, and folks celebrate when they succeed, even temporarily. Yet when a new Wal-Mart is approved, job applications reportedly pour in, and local high school bands literally trumpet the grand opening as cars line up in the parking lot. Wal-Mart is a death knell to some, a blessing to others. There is likely no other enterprise that engenders such strong and conflicting opinions and actions among individuals and the general public.

The company has even managed to become a swing voter: Political consultants have fashioned the “Wal-Mart mom” as someone with moderate to low income and a low education level who is politically conservative and feeling economically insecure. What other company is the subject of a musical? “Walmartopia” is a political satire that premiered in Madison, Wis., and is currently a full-fledged off-Broadway production.

Why Wal-Mart receives the attention is pretty obvious. Nearly 90 percent of the country’s population lives within 15 miles of a Wal-Mart, and two-thirds of all retail stores are located within five miles of a Wal-Mart. About five of every six Americans shopped at a Wal-Mart in 2005. In fiscal year 2007, the company accounted for 6 percent of all retail and food service sales in the United States, and 7.5 percent if you take out motor vehicle sales, according to company figures and U.S. Census Bureau data. Wal-Mart’s 2005 sales were larger than the combined sales of the next five biggest retailers in the country. Wal-Mart became the nation’s largest grocery store in 2002, just 14 years after it opened its first supercenter.

It adds up to a simple case of Wal-Mart being in everybody’s proverbial grill. According to a 2005 survey by Pew Research Center for the People and the Press, 24 percent of people think Wal-Mart is bad—bad—for the country, and 31 percent had an unfavorable view of the company, “which is a considerably higher negative rating than is accorded to many other major corporations,” the survey said. In a bit of cognitive dissonance, among those living near a Wal-Mart, the same survey found that 81 percent said it was a good place to shop.

Wal-Mart, we love to hate thee—ooh, is that a sale on Pampers?

Argument framing, aisle2

What’s it all mean? After all the debate, the finger-pointing and myriad opinions, what’s the bottom line on Wal-Mart? Is it good, bad or innocuous for Wal-Mart to come to your town, and how do you know?

Good question. The company has been the focus of a lot of research and analysis (see sidebar). While that research has come to an array of conclusions—virtually all of them disputed in some fashion—much of the analysis is faceless in terms of geography.

So the fedgazette decided to take a closer look at the matter, attempting to answer a seemingly straightforward question: What economic effect does Wal-Mart have on local communities in the Ninth District? Conventional wisdom suggests that Wal-Mart’s economic influence is significant and obvious. If that’s indeed the case, then we should see palpable change in measures commonly used as proxies for community health—things like jobs, firms, income, population and poverty.

So the fedgazette looked at 40 small counties in the district that saw Wal-Mart come to town between 1986 and 2003 and compared them with 49 similarly sized non-Wal-Mart counties in the district (see methodology). The fedgazette then looked at these familiar benchmarks—jobs, firms, population, income and poverty—from 1985 to 2005 to see if Wal-Mart counties performed differently than non-Wal-Mart counties.

Readers should understand that all results come with a host of caveats (again, see methodology for examples). The point of this research is not to offer the last word on whether Wal-Mart is helpful or harmful—it is clearly both, though which it is depends on the circumstances. In fact, in this matter Wal-Mart is no different from any new business—large or small—coming to town and competing with incumbent businesses for finite spending in a community. Wal-Mart just competes for a larger share of it, and within a bigger geographic area. As a result, the hope of this research is to better frame the friend-or-foe debate over Wal-Mart.

Given the terror that Wal-Mart is purported to inflict on communities, the fedgazette’s findings of the firm’s economic influence are almost mundane. Despite its kill-them-all reputation, Wal-Mart is not the threat that many fear, at least in terms of economic benchmarks commonly associated with healthy, growing communities.

For example, Wal-Mart is widely believed to destroy local firms and jobs and to have a dampening effect on wages. But fedgazette findings suggest the opposite: Firm growth, employment and total earnings were somewhat stronger in Wal-Mart counties and, in some cases, even in the retail sector. The research does suggest that retail earnings per job fell in virtually all counties studied. But they actually fell by less in Wal-Mart counties.

But neither has Wal-Mart been a boon for local communities. Poverty rates, for example, declined in most counties during the period studied, but they declined by less (poverty rates didn’t improve as much) in Wal-Mart counties. By other measures, Wal-Mart had no noticeable effect. Overall, counties with and without Wal-Mart had similar growth in population and income per person.

It should be emphasized that there are big differences in population, income and employment growth rates among the counties studied. Some counties with a Wal-Mart had strong growth, and other Wal-Mart counties had slow growth. Similarly, there were fast and slow growers among non-Wal-Mart counties. The point here is that Wal-Mart’s presence explains little of this disparity pattern. Still, some notable outcomes did show through in the study.

In sum, fedgazette findings suggest that Wal-Mart has a slightly positive effect on counties where the retailer decides to set up shop. But the effects are small; one could call the results mostly a wash. As a result, maybe the most concrete—and surprising—conclusion is that Wal-Mart’s presence (or lack thereof) has little or no predictive power regarding the economic success or failure of a county.

Start at the beginning

First, let’s look at some characteristics of the 40 Wal-Mart counties and the 49 non-Wal-Mart counties. About two-thirds of the Wal-Mart counties being studied had their store in place by the early 1990s.

Not surprisingly, Wal-Mart tends to locate in larger counties. In general, the larger the county’s population (using the study’s start date of 1985), the more likely Wal-Mart would eventually locate there. For example, about 20 percent of counties with populations between 10,000 and 20,000 in 1985 had a Wal-Mart by 2005, but the rate was close to 60 percent for counties between 20,000 and 30,000 people, rising to 80 percent for counties between 30,000 and 40,000. Every county in the district with a population over 40,000 had a Wal-Mart by 2005. On the other end of the spectrum, none of the 144 counties with a population under 10,000 in 1985 saw Wal-Mart come to town over the next 20 years.

In 1985, before any Wal-Marts appeared on the scene, counties that would be getting a Wal-Mart sometime in the coming two decades tended to have higher levels of population and employment, as well as higher employment ratios (jobs to population) relative to non-Wal-Mart counties. Retail sectors were larger in those counties that would later get a Wal-Mart. But per capita income levels were basically even between Wal-Mart and non-Wal-Mart counties (see Chart 1), and retail earnings per job were also similar (see Chart 4 ).
Chart: Wal-Mart Counties vs. Non-Wal-Mart Counties, 1985
All dollar values are constant 2000 dollar

Now fast-forward 20 years and take a look back at the growth of these same categories since 1985. Generally speaking, Wal-Mart counties saw stronger growth through 2005 by both median and aggregate (all counties combined) measures (see Charts 2 and 3).
Chart: Median Percent Growth, 1985-2005
All dollar values are constant 2000 dollars.

Chart: Aggrgate Percent Growth, 1985-2005
All dollar values are constant 2000 dollars.

Personal income growth over two decades was virtually identical in Wal-Mart and non-Wal-Mart counties, both in median and aggregate terms. Population growth was a mixed bag. Wal-Mart counties saw much higher median population growth. However, this appears to be a case of meager growth in the small non-Wal-Mart counties, which are somewhat overrepresented in the comparison group; median growth of non-Wal-Mart counties with populations over 20,000 was similar to Wal-Mart counties, as was aggregate population growth in both study groups (see Chart 3 above).

That’s not much of a victory for Wal-Mart fans, nor much grist for the critics’ mill; such similarity of group results, yet volatility across all counties, suggests that Wal-Mart’s presence had little influence on population in either direction. In fact, the lock step growth in income similarly suggests that Wal-Mart had little influence there as well.

Results are a bit stronger, and more favorable to Wal-Mart, when it comes to employment and earnings. Median employment growth was notably higher in Wal-Mart counties than in non-Wal-Mart counties. The difference shrinks for aggregate employment. This is due in part to five booming non-Wal-Mart counties (out of 49) that saw employment growth exceed 100 percent over this period; all but one border a metro county. In contrast, only one Wal-Mart county experienced employment growth of more than 100 percent.

Again, these results demonstrate the wide range of county performances, but also show that overall results for non-Wal-Mart counties are pulled up considerably by a small handful of fast-growing counties, most of which are near metro counties that already have a Wal-Mart. The same performance-enhancement effect is not true for the pool of 40 Wal-Mart counties.

Growth in job earnings offers another interesting angle. In 1985, overall earnings per job were higher in counties that would get a Wal-Mart in the future. However, wages in the retail sector in 1985 were almost identical in Wal-Mart and non-Wal-Mart counties (see Chart 4).
Chart: median Earnings per Job, 1985
All dollar values are constant 2000 dollars

From 1985 to 2005, earnings per job grew faster in Wal-Mart counties by both median and aggregate measures. In the retail sector, earnings per job actually fell in Wal-Mart counties over this period—but they fell by even more in non-Wal-Mart counties (see Charts 5 and 6).
Chart: Median Percent Change in Earnings per Job, 1985-2005
All dollar values are constant 2000 dollars.

Chart: Aggregate Percent Change in Earnings per Job, 1985-2005
All dollar values are constant 2000 dollars.

One of the few areas where non-Wal-Mart counties saw stronger growth was in total compensation—wages plus benefits like health care and retirement contributions—for wage and salary workers. Though the difference was not particularly large, it fits with the long-term trend of firms offering workers more (and more expensive) benefits over time, while Wal-Mart has been chastised for its employee benefits. However, a better apples-to-apples comparison (which was not available in the data) would be growth of income and benefits just in the retail sector, which historically offers fewer benefits than most other sectors of the economy.

Pricing out the competition?

Wal-Mart is often accused of trampling the local business sector. But data on county establishments don’t support such a notion, at least not in the Ninth District. The most obvious place to look is at general merchandise establishments in a county (a business classification that includes Wal-Mart). Much higher levels of business closures might be expected to show up in Wal-Mart counties, but the data don’t bear that out.

Several limitations prevent any strong conclusions regarding general merchandise stores. For example, the number of firms in this category is comparatively small at the county level. The time frame for observations also is limited by the fact that the federal government converted to a new business classification system (Standard Industrial Classification to North American Industry Classification System) in 1997. Creating a methodologically sound bridge between the two systems (to ensure we’re still measuring the same thing, in the same way) is shaky when total firms in question are small. What we can say is that from 1985 to 1997, general merchandise stores declined by similar amounts—about half-a-store on average—in non-Wal-Mart counties and in the 31 Wal-Mart counties that had a Wal-Mart by 1996.

Trends in total county firms also go against the popular notion that Wal-Mart is laying waste to local businesses. Even among establishments with fewer than 10 employees, there was discernibly little Wal-Mart effect.

Median establishment growth in Wal-Mart counties, for example, was stronger than in non-Wal-Mart counties, particularly among smaller employers. In terms of aggregate establishment growth, non-Wal-Mart counties saw stronger growth (see Charts 7 and 8). However, as mentioned earlier, establishment growth among non-Wal-Mart counties is heavily influenced by a small number of booming counties; if the top five counties are removed from both study pools, aggregate establishment growth is higher for Wal-Mart counties.

Chart: Median Percent Change in Establishments, 1985-2005

Chart: Aggregate Percent Change in Establishments, 1985-2005

Various other conclusions regarding establishment growth can be gleaned in favor of either Wal-Mart or non-Wal-Mart counties. But probably the most accurate conclusion from these data: The presence or absence of Wal-Mart is neither an obvious anchor nor a hot air balloon for business growth in a county.

Sales tax data offer another window on Wal-Mart’s economic effect. Wal-Mart likely attracts shoppers from neighboring counties, and wider selection might also induce more frequent shopping. But a new store might also squeeze out other local retailers.

Taxable retail sales for 1985 and 2005 were gathered for Wal-Mart and non-Wal-Mart counties in Minnesota, North Dakota, South Dakota and Wisconsin. (Data weren’t combined across states because tax rates and items eligible for sales tax are different among states and changed over this period. Also, Wisconsin data were from 1991 and 2005.)

Wal-Mart counties in each state saw mostly similar or faster growth in taxable sales compared with non-Wal-Mart counties. For example, taxable sales for Wal-Mart counties grew faster in North Dakota; in South Dakota and Wisconsin, average taxable sales were slower, but only by a couple of percentage points. But buyer beware; the number of observations in each of these states is small, which introduces some uncertainty.

In Minnesota, which had easily the largest number of county observations of any state, both median and aggregate county tax receipts grew much faster in Wal-Mart counties (see Chart 9). While the results are not conclusive, at least in Minnesota there seems to be a correlation between faster growth in taxable sales and the presence of a Wal-Mart.
Chart: County-level Percent Changes in Sales Tax Receipts in MInnesota, 1985-2005
Sales tax data are in nominal dollars.

How about a different angle?

The fedgazette also looked at shorter time periods, and the general findings were little changed. Over a two-year window—one year before store opening and one year after opening—Wal-Mart had little effect on average personal income or population; employment increased in Wal-Mart counties relative to non-Wal-Mart counties, especially in retail; and growth rates in earnings per job were generally similar, but were higher in retail for Wal-mart counties. Those findings held steady when the time frame was widened to six years (one year before opening, five years after opening).

Lastly, the fedgazette looked at Wal-Mart counties six years prior to the store opening, and these counties showed little evidence of having stronger income growth leading into the opening of the Wal-Mart. In other words, it’s not obvious that Wal-Mart was able to ride the coattails of strong county economies and hide any potentially negative local effects.

One finding not favorable to Wal-Mart has to do with poverty. From 1989 to 2004, poverty as a whole dropped across the Ninth District. Despite positive associations with some basic economic measures, Wal-Mart counties saw their poverty rates drop much less than non-Wal-Mart counties, both in median and average terms (see Charts 10 and 11). Counties with supercenters fared better, but poverty in those counties still did not improve as much as in those counties without a Wal-Mart.
Chart: median Poverty Rates

Chart: Average Poverty Rates

The fedgazette investigated whether immigrant population flows had any relationship to the poverty trends. Immigrants are more likely to be poor than the native population, and it was hypothesized that Wal-Mart counties might attract more immigrants given the availability and visibility of new jobs and/or the cost-savings potential of living near a Wal-Mart. However, the data show little evidence that changes in the foreign-born population play a major role in the differential change in poverty within the two sets of counties.

So, friend or foe?

Regardless of predisposition to Wal-Mart—whether a vocal critic or a live-and-let-live advocate—none of these fedgazette findings can be considered the last word on the Wal-Mart effect because they are not “causal” in nature; that is, we cannot say that Wal-Mart is directly responsible for any particular outcome—positive or negative—in the counties investigated. This analysis merely offers correlated facts. Proving a causal relationship between Wal-Mart and local economic trends is rife with complications. Indeed, such complexity is one of the reasons controversy continues to swirl around the company.

With that caveat, findings from this fedgazette analysis suggest that much of the conventional wisdom regarding Wal-Mart’s nefarious effects on local communities is off base, at least in relation to measures that the public and policymakers often use to gauge community health. The analysis is also absent any discussion of the savings local consumers realize by having Wal-Mart in town (see further discussion).

But neither does the analysis assume that Wal-Mart is a boon to counties. Though the balance of findings is, in sum, more positive than negative toward Wal-Mart, all of the measured effects were small. Given some positive and some negative outcomes, it’s probably safest to say that Wal-Mart’s net imprint on a county’s health appears to be smaller than most perceive.

If that’s surprising, maybe it shouldn’t be. County economies—even small ones—are dynamic entities, constantly changing and extending well beyond their retail borders. Firms, jobs and people come and go with regularity, and for lots of different reasons. It could be that the economic idiosyncrasies of local communities—education levels, infrastructure investments, entrepreneurial culture, local business mix, geographic good fortune—play a larger role in determining the long-run growth prospects for the 89 counties studied here than whether the bogyman dressed as Wal-Mart showed up at the community door.

Description of Data Used in fedgazette Wal-Mart Analysis

Posted by Mark Thoma on Wednesday, January 9, 2008 at 01:04 AM in Economics

Save to del.icio.us • Email this

Permalink TrackBack (0) Comments (28)

TrackBack

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d83451b33869e200e54fc65c8a8833

Listed below are links to weblogs that reference “The Wal-Mart Effect: Poison or Antidote for Local Communities?”:

Comments
reason says…

Confirms my priors, Walmart is a symptom not a cause. But I don’t (in a quick scan) see much about selection bias in the results. It seems to be assumed that Walmart’s decision to open a store is randomly made. If Walmart chose to open its stores where it say good growth prospects, this may bias the results.

Posted by: reason | Link to comment | January 09, 2008 at 01:24 AM
Peterbob says…

It seems that the real impact would be in prices. DOES Walmart have a superior business model that results in lower prices? If so, then you get one set of effects (Walmart hurts other similar retailers, attracts customers and employees, retail sales rise, and is good for consumers). I saw a TV add from Walmart saying that it “saved” the average household a few thousand dollars each year. The fine print referenced a report by Global Insight consultants.

Posted by: Peterbob | Link to comment | January 09, 2008 at 02:20 AM
Lafayette says…

Article: The discount chain carries the contradictory titles of most popular retailer in the United States and the entire world in terms of revenue

Take the “and the entire world” out of that statement. Once again starry-eyed kids at the Fed think what’s Great in America is Great “in the entire world”. They are nowhere to be seen in France or (I think) Italy & Spain.

WalMart has left Germany after failing to penetrate and is likely leaving the UK (or staying but under a local name).

In Europe, the discount outlets are small stores and VERY effective in terms of pricing. The leader of them, a family outfit — just like the Waltons — is called LIDL. Lidl sells more than just groceries but no large-ticket items. It does commercialize small-ticket Chinese products that sell well in the poorer classes that are typically its customers.

Lidl stores have arrived even unto the boonies of France. And, it must compete with at least two other similar outlets in the same medium-sized city. I can’t imagine how these discount chains survive, unless an averaging of profits across a national geography is made, that is, between the relatively small store in smaller communities and the larger stores in the larger communities.

Sixty percent of grocery retailing in Germany is through discounters, and that existed when WalMart decided to “come to town”. Five years of red ink and WalMart finally gave up.

Discounting is overtaking most supermarket retail, so as a defensive tactic, the historically established outlets are starting up discounters (even when they eat into local sales of the flagship chain.)

Posted by: Lafayette | Link to comment | January 09, 2008 at 02:35 AM
ken melvin says…

Where to begin? Kinda like someone killing the parents then adopting the children and saying what a good boy am I.

Posted by: ken melvin | Link to comment | January 09, 2008 at 06:30 AM
johnchx says…

I guess I’m on “Obviously Worthless Analysis” patrol again. To its credit (sort of) the article includes the following disclaimer (tucked away behind the “methodology” link):

Most important, none of the findings can be considered causal in nature. In other words, the findings don’t tell us whether Wal-Mart’s presence (or lack thereof) is responsible for either positive or negative outcomes over the period studied. Proving a causal relationship between Wal-Mart and local economic trends is beyond the scope of this analysis.

So, confronted with the question of whether Wal-Mart causes good or bad things to happen, we respond a study from which all causal implications are completely disclaimed. Huh.

Bottom line: ignore this. It doesn’t even try to tell us what we’d like to know.

Why of why can’t we have a better Federal Reserve Bank of Minneapolis?

Posted by: johnchx | Link to comment | January 09, 2008 at 07:51 AM
hari says…

Lafayette is right on what happend to WalMart in Germany.

All majour political parties have also gone on record, by the way, that there’s no place for a WalMart type of store in German society!

So have most of the media.

What does that tell about the philosophy behind WalMart stores?

Posted by: hari | Link to comment | January 09, 2008 at 08:35 AM
ScentOfViolets says…

Hold up just a bit . . . I don’t like Walmart. I don’t like it at all. But the numbers have to mean something. They aren’t the best, but neither have they been obviously cherry-picked to present the best possible outcome. What are the killing objections to these numbers? My starting hypothesis (I assume everyone has something like it) is that Walmart is Bad News. But the data simply don’t seem to confirm this.

My previous rough story was that it was true that Walmart lowered prices on a certain class of consumer items (good), but that the jobs it offered were subpar in terms of wages, benefits, and development of skill sets (bad). Trying to some up the two effects, I had assumed that the net outcome would be that communities would be worse off, since the reduced salary still has to pay for rent, insurance, etc., which are not correspondingly reduced in price by the presence of Walmart, and since those types of goods account for the higher proportion of the typical persons expenses.

I have made some sort of obvious mistake?

Posted by: ScentOfViolets | Link to comment | January 09, 2008 at 08:36 AM
L.F. says…

A few posts above, johnchx commented that the article ought to be written off because it claims no causal relationship between Wal-Mart and the various measures the article explores. I would hesitate to dismiss the findings so quickly. I think the authors are merely pointing out (however implicitly) that the findings represent a correlation between Wal-Mart and certain indicators, rather than a clear cause and effect. Possible methodological flaws aside, this is one of the best assessments of the “Wal-Mart phenomenon” that I have seen.

Posted by: L.F. | Link to comment | January 09, 2008 at 08:46 AM
robertdfeinman says…

There are just so many things wrong with this study that I don’t know where to begin, so I’ll just name one – using counties as a unit of measurement is meaningless. This is the key under the lamppost effect. They have county by county data so that’s what they study.

There is a brief acknowledgment that shoppers may be attracted from neighboring regions, but the implications aren’t examined. Walmart doesn’t make siting decisions based upon counties, it has a zone of influence model that it uses. This is well known, they frequently site a store just across a political border (town or county) if there is too much resistance in the first choice. They know the shoppers will travel the short extra distance.

They also use this model to set prices. One can find two Walmart stores in the same town that have different prices because their local competitors are not each other, but closer by stores.

We discuss all things Walmart daily on the group blog:
The Writing on the Wal

Stop by, if you are interested in the topic.

Posted by: robertdfeinman | Link to comment | January 09, 2008 at 09:19 AM
barry payne – economist says…

An interesting comparison can be made between WalMart and universal health care for the U.S.

Consider the claimed efficiencies associated with WalMart’s retail sales of products provided by its 60,000 worldwide wholesale suppliers.

A single-payer health care system would exert substantial monopsony power (single buyer) over providers of health care throughout the entire supply chain. The general idea is to achieve outcomes similar to that of WalMart already achieved in the area of cheap generic drugs.

However, the “big is not evil” argument is usually applied by conservatives to the private sector favorably while used to paint the government as a miserable failure in similar areas with the reverse – “big is evil”.

In this context, monopsony power by WalMart is denied, as is the effectiveness of monopsony power applied by government to improve the production and delivery of health care in the U.S. (Instead, both are assumed “competitive” and “efficient” absent monopsony.)

For example, consider the comments below, selected from an interview with Richard Vedder of AEI, who has performed a detailed economic study of WalMart.

http://article.nationalreview.com/?q=N2UyMmI3OWJkZGU2MDE1MjdmY2U0NDFkODMzMDJlY2U=

“Lopez: Isn’t being union-free a recipe for unhappy workers, social injustice — and the lawsuits Wal-Mart is seeing?

Vedder: No. About 91 percent of the American private sector workforce is “union-free” and as a group are not particularly unhappy. Indeed, the fact that on average Wal-Mart workers are pretty happy is probably a big reason why workers have resisted unionization. If workers are so unhappy, why don’t they unionize, and why doesn’t Wal-Mart have a hard time getting workers? …

… Lopez: Is the latest health-care team-up with unions a sign of a lessening of the attack and more people (and liberals) getting with the Wal-Mart Revolution?

Vedder: I think Wal-Mart is making a mistake in trying to sleep with their enemies. They probably think this will get the unions off their back — and Wendell Cox and I think they are wrong, They may also think a national health care system would take this cost item off their back, not realizing that the inefficiencies of such a system will have to be paid for by someone, and Wal-Mart will no doubt pay more than a proportionate share. National health care is a prescription for lower economic growth, and that would hurt Wal-Mart a good deal.”

(more at link above)

So Vedder asserts the organizational structure of WalMart is cost-effective at providing widgets and mousetraps (and even some generic drugs), but a similar organizational structure employed by government to provide health care will result in economic failure, even to the point of WalMart’s failure to game the system by shoving its health care costs onto that system.

Meanwhile, 91% of the private workforce is cast as “not unhappy” with a “non-union” workforce, perhaps as they would not be unhappy with cheaper widgets and mousetraps. So how “unhappy” are the same workers with no health insurance, and even some with it?

Posted by: barry payne – economist | Link to comment | January 09, 2008 at 09:43 AM
jefff says…

I saw an interesting documentary about Cleavland, and the recent (now perhaps reversing?) decline of cities in the US. There was a fascinating pattern of stores moving from the city to the suburbs leaving behind empty shells, then a couple decades later moving from the inner suburbs to new outer suburbs leaving another empty shell.

A radially expanding pattern of decay was formed as people and stores moved further and further out trying to stay ahead of their own ultimate stage of higher density, higher property taxes (because land values would have increased and tax breaks would have run out), and mixed population (egad, poor people!). So I don’t think walmart is unique in leaving empty husks behind. All those stores do so. Abandoned stores are a waste product intrinsic to the business model just like packing materials. They move in and build a store on some agricultural or undeveloped land then eventually they move on (even if only to a new building nearby) leaving a rapidly decaying big box surrounded with asphalt. Sometimes the land values will be high enough that someone occupies it, or tears it down, but that also might not happen for a long time.

In the end it seems to me that a major cause was the subsidization of new support infrastructure by pre-existing communities. Highways are the most obvious, but water, electricity, schools, police, local roads, property tax exemptions for big businesses, etc all cost a lot of money.

It is my impression of Europe that sprawl is generally less encouraged (though there is some sprawl encouragment) and I think that a key of walmart’s success in the US is that it is perfectly adapted to an environment of continuing subsidized sprawl.

Posted by: jefff | Link to comment | January 09, 2008 at 10:00 AM
Zero says…

Fascinating Comments Jefff. It amazes me that Ikea wins architectural awards for their stores, but then the competition are Wal-Mart stores!!

Posted by: Zero | Link to comment | January 09, 2008 at 10:29 AM
TigerPaw says…

An interesting thing I’ve noticed about the US far more so than other countries is the tendency for cities to decay while the suburbs build up (the radiating rings of decay mentioned earlier). Certainly all cities in all countries have areas that go downwards but eventually renewal takes place and the city as a whole “lives”. Never quite understood why it is that US cities seem to do far more decay and very little renewal.

Posted by: TigerPaw | Link to comment | January 09, 2008 at 10:52 AM
TigerPaw says…

An interesting thing I’ve noticed about the US far more so than other countries is the tendency for cities to decay while the suburbs build up (the radiating rings of decay mentioned earlier). Certainly all cities in all countries have areas that go downwards but eventually renewal takes place and the city as a whole “lives”. Never quite understood why it is that US cities seem to do far more decay and very little renewal.

Posted by: TigerPaw | Link to comment | January 09, 2008 at 10:52 AM
ScentOfViolets says…

L.F., I think you’re right. My take is quite simple: if causation ==> correlation, then the contrapositive must hold, that lack of correlation ==> lack of causality. Which is what this study seems to indicate.

Robert, surely you’re only saying that the data by county is incomplete? You’re not trying to imply that the data by county should be discarded, are you?

Further, is it your contention then that the effects outside of the county where the store is actually placed dominate? That seems hard to justify; I would think that most of the employment that is lost and gained would have been in the county itself. What is your reason for thinking otherwise?

Finally, how would you design a study to investigate these putative effects, and what sort of data would convince you that you were wrong?

Bear in mind that I share your sympathies as well as your expectations; I would have thought that such a study would have confirmed the conventional wisdom among ‘liberals’. That it doesn’t is surprising, to say the least. But I’ve always prided myself on being a numbers-oriented, non-ideological sort of citizen, and if this truly what the numbers say, then that’s what I will go with.

I’m going to go with what reason says and suggest that Walmart is a symptom, not a cause.

Posted by: ScentOfViolets | Link to comment | January 09, 2008 at 11:18 AM
ScentOfViolets says…

Well Tigerpaw, wouldn’t that have to do with the relative cheapness of land to expand into in the United States? Far cheaper to acquire new land and commence new ‘development’ as opposed to actually rejuvenating older districts. At least, that would be my guess.

Posted by: ScentOfViolets | Link to comment | January 09, 2008 at 11:27 AM
TigerPaw says…

ScentofViolets:

I’d agree except for the fact that here in Canada, where land is arguably as easy to find as in the US if not more so, the cities tend not to decay to the same degree. Areas go down yes, but then come back after a while and renew themselves – or at least to a larger degree. It’s the degree of what might be loosely termed “abandonment” that has always struck me.

Posted by: TigerPaw | Link to comment | January 09, 2008 at 11:35 AM
Meh says…

The killer problem with this study is mentioned in the methodology section, but there’s no attempt to engage with it beyond mentioning it.

reason already mentioned it above: selection bias.

The fedgazette tries to sidetrack us with an interesting article about how Walmart selects where to put stores, noting that they have found success by not using the obvious brute force indicators of economic growth.

However, this is a red herring. Just because they have found a more useful set of proxy measurements to tell them where to put stores doesn’t mean they are siting stores randomly wrt economic growth generally.

In fact, the few studies I’ve seen show that Walmart’s unique set of selection criteria are so useful because they are better at pinpointing growing communities than the blunt county level economic data that tends to be released by the government.

If we look at the all these graphs then, showing “not much difference between Walmart areas and non-Walmart areas in wages, etc.” with the understanding that the Walmart areas were on the up when Walmart arrived and the other areas likely were not so on the up, then it’s still likely the case that Walmart isn’t a big factor, but it is also likely that it is a constant small negative.

Now, this is just me drawing logical inferences from the data that is available. If we want to know, then someone has to do the work to clarify if Walmart does generally pick “neighborhoods on the up” or not.

Personally I go with “reason” overall. As he states above, Walmart is less a disease than a symptom. Whole areas of the USA are not particularly economically viable in a globalised economy at this moment in history. In those areas, Walmart is no more damaging than anyone else would be. Likewise, in richer areas, the median income is stagnant, but that’s as much the fruit of 20 years of Reaganomics as anything.

Posted by: Meh | Link to comment | January 09, 2008 at 11:43 AM
ScentOfViolets says…

But the claim, Meh, is that Walmart costs jobs, or at least quality of jobs. Not in the sense of not being as good as the potential alternative, but in the sense of actual declines, in income, benefits, etc. This is clearly not born out by the study.

Further, the objection that Walmart only targets favorable locations as opposed to random ones seems spurious. That’s the reality, not selection bias.

Any other objections?

Posted by: ScentOfViolets | Link to comment | January 09, 2008 at 12:14 PM
robertdfeinman says…

One needn’t look at any stats to see the “Walmart effect”. Before Walmart enters a community, it’s needs are being met by existing sales outlets.

After Walmart enters, the needs continue to be met, but there is a shift in the economic impact. The money earned by a local mom & pop store tends to stay in the community, since the owners are also residents. But the profits from Walmart flow out of the community and into the coffers in Bentonville and ultimately into the pockets of the Walton family.

The Waltons currently earn over $1.3 billion per year just from the dividends they collect on their shares. I don’t think one needs to do any fancy modeling to see that this has to have an adverse affect on the local economy. Walmart perfected one thing, the modern supply chain. This means buying in bulk, using monopsony power to force down prices charged by suppliers (and quality as well, when required), and tracking merchandise so as to optimize distribution and avoid excess inventory.

These techniques are now standard in retail. Those who don’t do this well fall by the wayside (Circuit City, CompUSA, to cite two recent examples). In addition to keeping the costs of products low Walmart also keeps the cost of labor low. They do this by underpaying their employees and forcing much of the cost of social services onto the government. Walmart employees are given instructions on how to apply for government services such as food stamps and Medicaid.

Biased “studies” neglect the impact on local governments, although there was some mention of Walmart winning tax concessions. When Walmart gets a tax break for opening a new store, the revenues of the local government drop. The sales lost by competitors who go out of business are not recaptured by the sales gained by Walmart. Some times Walmart even wins concessions on the collection of sales tax, the rationale for this is impossible to find. They get to keep the tax, the consumer doesn’t pay less.

Walmart is successful because it is more “efficient”, but also because it doesn’t play by the rules. You don’t need any studies to see the impact, just common sense.

economist academic source : http://economistsview.typepad.com/economistsview/2008/01/the-wal-mart-ef.html

Crossfire Consulting

Cheap Diamond Rings

www.crossfireconsulting.net

Related Websites

• Save Money on Glasses and Contact Lenses [/caption] I was cleaning my glasses the other day and like the butter fingers I am, dropped them. A lens popped out. I instantly thought, "Great, I'm going to have buy new glasses now." (I...
• What to Carry in Your Car for Emergencies The best way to save money is to prepare for emergencies. A couple of years ago, we went down to vist my mom and the tire went out. I had a spare tire to put...
• Property Taxes and the Paid-Off Mortgage If you have paid-off your mortgage (as we did earlier this year), you have some new tasks to takeover from the bank or mortgage company. One of those is paying the property taxes on your...
• Palm Pixi for $30 at Wal-Mart The $99 advertised price (with 2-year contract) is just a starting point for the Palm Pixi. As we predicted there will be better deals almost right away. Well the Pixi isn't even out yet and...
• How Much for Donald Duck?! Photo Credit: Green Panda How much is the merchandise at Disney World marked up? I did an informal comparison while on vacation. Outside Disney World there's a Walmart that sells some Disney souvenirs. Donald Duck...