Wal-Mart causes lower wages, increases unemployment

Economics Economics Questions
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1

http://laborcenter.berkeley.edu/retail/walmart_downward_push07.pdf

Empirical evidence suggests that employees at Wal-Mart earn lower average wages and receive less generous benefits than workers employed by many other large retailers. But controversy has persisted on the question of Wal-Mart’s effect on local pay scales. Our research finds that Wal-Mart store openings lead to the replacement of better paying jobs with jobs that pay less. Wal-Mart’s entry also drives wages down for workers in competing industry segments such as grocery stores.
Looking at the period between 1992 and 2000, we find that the opening of a single Wal-Mart store in a county lowered average retail wages in that county by between 0.5 and 0.9 percent. In the general merchandise sector, wages fell by 1 percent for each new Wal-Mart. And for grocery store employees, the effect of a single new Wal-Mart was a 1.5 percent reduction in earnings.
When Wal-Mart entered a county, the total wage bill declined along with the average wage. Factoring in both the impact on wages and jobs, the total amount of retail earnings in a county fell by 1.5 percent for every new Wal-Mart store. Similar effects appeared at the state level.

With an average of 50 Wal-Mart stores per state, the average wages for retail workers were 10 percent lower, and their job-based health coverage rate was 5 percentage points less than they would have been without Wal-Mart’s presence. Nationally, the retail wage bill in 2000 was estimated to be $4.5 billion less in nominal terms due to Wal-Mart’s presence.

2

So…?

Wal Mart has enabled consumers to spend less on retail goods so that they have more disposible income for other consumption items. This means other industries (and job markets) are able to grow. Looking at and placing precedence on isolated macrodata means you are choosing to ignore other macrotrends.

3

Just a week ago:

Sweatshops, tacos, and Wal-Mart: Is there anything to criticize?

and let’s not overlook:

In Praise of Cheapeners

Class War and Wal-Mart

Thousands Demand to be Exploited

Why Wal-Mart Matters

The Ultimate pro-WalMart Article

How Not to Like Wal-Mart

Wal-Mart Serves Humanity

The Case for Wal-Mart

and just for fun…

Does Wal-Mart Destroy Communities?

The Union Conspiracy Against Wal-Mart Workers

Plenty more where that came from.

4

“wages fell by 1 percent for each new Wal-Mart. And for grocery store employees, the effect of a single new Wal-Mart was a 1.5 percent reduction in earnings.”

How much did the prices that consumers paid fall? More than 1% i’m guessing.

5

How would average wages fall when new buyers are added to a labor market? Are unemployed people included in those averages?

6

The Art Carden article refers to studies addressed in the study I linked above as having methodological problems that lead to incorrect conclusions regarding the effects Walmart has on employment levels.

However, the study I linked appears to only look at retail employment, and doesn’t look at the benefits of lower prices for goods.

7

http://cecd.aers.psu.edu/pubs/PovertyResearchWM.pdf

The link above is a study that looks at Wal-Mart’s effect on county-wide poverty rates and concludes that the introduction of a Wal-Mart store causes an increase in poverty. Surely this is a macroeconomic data point that should not be dismissed lightly?

8

Why does Walmart pay such low wages?

9

Of course it should be dismissed lightly.

Here is a key quote from that paper:

The question whether the cost of relatively
higher poverty in a county is offset by the benefits of lower prices and wider choices available
to consumers associated with a Wal-Mart store cannot be answered here.

And another, emphasis mine:

This raises the question of why Wal-Mart affects county poverty rates.

First is the ob-
vious fact that poverty rates will rise if retail workers displaced from existing mom-and-pop
type operations work for Wal-Mart at lower wages because they have no alternatives (this as-
sertion has been contested in the literature), all else equal.

In other words, Mom and Pop having to get a new job doesn’t explain it.

Second, even though Wal-Mart
Corp. presents itself as a “good local citizen” and engaged in local philanthropy through the
Sam Walton Foundation in the amount of $106.9 million 2003 alone,6 this type of philanthropy
may not be as extensive or effective as that which the displaced mom-and-pop type stores
would have provided.

All that research money for a maybe that assumes Mom and Pop were so generous that they eliminated poverty with their brillianltly placed gifts.

Lame. As he admits, calling it a maybe.

A third and perhaps more subtle effect may be that, by destroying the local class of en-
trepreneurs, the Wal-Mart chain also destroys local leadership capacity.

Oh, so that’s it. WalMart is destroying our leadership capacity, impoverishing us all.

OK study, are you sure about this or is this another maybe?

Also, is that your best shot, the most important, far reaching factor you could come up with?

Thus, the elimina-
tion of local leaders from among a key group of entrepreneurs may be the single-most impor-
tant and far-reaching impact of Wal-Mart Corp.

In short, he has no explanation for it except for a few very lame maybes.

So let us not confuse causation with correlation.

10

So Wal-mart destroys people’s competitiveness? wtf

11

It’s not Wal Mart paying low, it’s the union workers getting overpaid. And WalMart doesn’t overpay because they do not want to go out of business.

Unions have bankrupted every place they have wormed into; WalMart doesn’t want to be the next victim.

12

I assume you mean the most recent one at the top, as there were about 3 or 4 Art Carden in that list (he’s done plenty of looking at walmart over the years).

Of course it didn’t. (it all ties together starting at 2:15)

13

There’s no explanation here as to how Wal-Mart actually causes lower wages. You’ve provided data which shows that nominal wages have fallen in certain regions, during specific periods, and place the blame upon Wal-Mart. Simply put, correlation =/= causation and Wal-Mart provides high quality products at low prices which elevates living standards (increases real incomes) across the board (which is why it has obtained such market power).

But I wouldn’t automatically dismiss the possibility that Wal-Mart may potentially and temporarily monopolize low-skilled, uneducated, and inexperienced labor in certain regions, and may use this monopoly power to reduce wages. Again, this could only occur in the short-run, and you haven’t provided sufficient evidence showing that this is the case.

14

Those are rational and well-explained critcisms, guys. I thank you all.

15

Walmart make a lot of profit ($3.6billion a year) and there is little chance that improving wages would make them go out of business. It would cut in to their profits. But a well paid worker works more efficient and has more drive. Take the example of John Lewis, which is a department store in the UK. They divided up £151 million in bonuses to all staff. I would think that the staff of that store will be more effective workers now.

What is the economic reason for them paying low wages. The jobs must be easy to do, thus there is a high demand for jobs at walmart. That means that walmart have no need to offer better wages. The only reasons walmart would need to increase the wages would be if they were struggling to employ people at the low wage, If they required more skilled workers that would not work for the low wage or if they wanted to “be nice” and improve the work ethic of the workers and thus driving up productivity.

Just look at IKEA a swedish department store that designs and produces a lot of its own furniture. There are ways of competing with walmart that do no require a company to copy the exact logistic, distribution and production models as walmart.