Friday, February 24, 2006

Wal-Mart Ate My Baby!



Okay, I don't have a baby and Wal-Mart would do nothing of the sort. But the alarmist tone of the title isn't far from the tone of the Wal-Mart debate in the United States. Some feel the retailer's expansion is an economic salvation, others see it as a scourge. Until recently, little in the way of actual economic research underpinned the Wal-Mart hullabaloo. A recent piece in the Economist summarized the findings of several research papers about the economic effects of Wal-Mart. How does Wal-Mart affect the retail sector and employment in local communities? What do Wal-Mart stores do to the average local wage? What's the retailer's effect on local consumers? Read the commentary to see what issues the latest economic research raises.

1. Wal-Mart argues that its arrival in a local market is good for the health of local retailing. Here's a quote from Global Insight's press release concerning its Wal-Mart research:

The study shows that with the opening of a typical 150-350 person Wal-Mart, retail employment increases by an average of 137 jobs over the near-term and levels off to a 97-job increase over the long-term. It also leads to net job losses in food stores, and apparel and accessory stores, and net job gains in building materials and garden supply stores, and general merchandise stores. According to the study, while Wal-Mart does appear to displace other retail establishments in a county, it also serves to stimulate overall retail sector development.

What does the Economist's piece say about this result? Does the correlation between a Wal-Mart opening and strong retail job growth prove causation? What factors might motivate Wal-Mart's decision to open a new store?

2. According to research by the Public Policy Institute of California (PPIC), what effect does a new Wal-Mart have on joblessness in local communities? According to PPIC research, what is Wal-Mart's effect on the incomes of retail workers?

3. According to University of Missouri economist Emek Basker, how do new Wal-Marts affect consumer prices in local communities?

4. I, for one, have "delicate sensibilities" and prefer the local co-op to Wal-Mart. Do I still benefit from Wal-Mart's presence? According to economists Hausman and Leibtag, how much does a local shopper save on grocery bills as a result of Wal-Mart's presence?

Topics: Competition, Job churning, Correlation versus causation

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