Paul Krugman: Wal-Mart's Excuse

Paul Krugman looks at Wal-Mart's attempts to improve its public image by claiming it is an engine of job growth and finds the arguments worthy of one of those end of year "worst of" lists:

Big Box Balderdash, by Paul Krugman, NY Times:  I think I've just seen the worst economic argument of 2005. ... The argument came in the course of the latest exchange between Wal-Mart and its critics. A union-supported group, Wake Up Wal-Mart, has released a TV ad accusing Wal-Mart of violating religious values, backed by a letter from religious leaders attacking the retail giant for paying low wages and offering poor benefits. The letter declares that "Jesus would not embrace Wal-Mart's values of greed and profits at any cost." You may think that this particular campaign - which has, inevitably, been dubbed "Where would Jesus shop?" - is a bit over the top. But it's clear why those concerned about the state of American workers focus their criticism on Wal-Mart. The company isn't just America's largest private employer. It's also a symbol of the state of our economy, which delivers rising G.D.P. but stagnant or falling living standards for working Americans. ... So how did Wal-Mart respond to this latest critique?

Wal-Mart can claim, with considerable justice, that its business practices make America as a whole richer. The fact is that ... its low prices aren't solely or even mainly the result of the low wages it pays. Wal-Mart has been able to reduce prices largely because it has brought genuine technological and organizational innovation to the retail business. It's harder for Wal-Mart to defend its pay and benefits policies. Still, the company could try to argue that ... it cannot defy the iron laws of supply and demand, which force it to pay low wages. (I disagree, but that's a subject for another column.) But instead of resting its case on these honest or at least defensible answers to criticism, Wal-Mart has decided to insult our intelligence by claiming to be, of all things, an engine of job creation. ...[T]he assertion that Wal-Mart "creates 100,000 jobs a year" is now the core of the company's public relations strategy. ...

But adding 100,000 people to Wal-Mart's work force doesn't mean adding 100,000 jobs to the economy. On the contrary, there's every reason to believe that as Wal-Mart expands, it destroys at least as many jobs as it creates, and drives down workers' wages in the process. Think about what happens when Wal-Mart opens a store ... The new store takes sales away from stores that are already in the area; these stores lay off workers or even go out of business. Because Wal-Mart's big-box stores employ fewer workers per dollar of sales than the smaller stores they replace, overall retail employment surely goes down, not up... And if the jobs lost come from employers who pay more generously than Wal-Mart does, overall wages will fall...

This isn't just speculation on my part. A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, "The Effects of Wal-Mart on Local Labor Markets," uses sophisticated statistical analysis to estimate the effects on jobs and wages as Wal-Mart spread out from its original center in Arkansas. The authors find that retail employment did, indeed, fall when Wal-Mart arrived in a new county. It's not clear ... whether overall employment ... rose or fell ... But it's clear that average wages fell: "residents of local labor markets," the study reports, "earn less following the opening of Wal-Mart stores." So Wal-Mart has chosen to defend itself with a really poor argument. If that's the best the company can come up with, it's going to keep losing the public relations war with its critics. Maybe it should consider an alternative strategy, such as paying higher wages.

Agreed. Here's a link to the study (NBER, Open link). Update: Full column here.

Previous (12/9) column: Paul Krugman: The Promiser in Chief
Next (12/16) column: Paul Krugman: Drugs, Devices, and Doctors

Comments

[Movie Guy]

Paul Krugman -- "A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, "The Effects of Wal-Mart on Local Labor Markets," uses sophisticated statistical analysis to estimate the effects on jobs and wages..."

A recent study?? Sophisticated statistical analysis??

Good grief.

There is not a community in America that didn't understand what happened to local retail stores and wages once a Wal-Mart opened its doors in their immediate area.

Old issues. Old answers.

[anne]

[Notice, another way to deal with a decline in Pacific salmon is to ignore the decline.]

http://www.nytimes.com/2005/12/12/opinion/12mon2.html?ex=1292043600&en=0080be8ca29e4eec&ei=5090&partner=rssuserland&emc=rss

December 12, 2005

Larry Craig Versus the Salmon

Small wonder Senator Larry Craig was once touted as "legislator of the year" by the National Hydropower Association: the Idaho Republican has just shown how galvanized he can get on behalf of the Northwest power dam industry by slipping a sentence into a budget bill that would choke off financing for the hard-working federal agency that counts endangered salmon in the Columbia River.

For years, the Fish Passage Center has been tolling the decline of salmon as they fought their way around federal dams on the Columbia and Snake Rivers. This agency has supplied vital and entirely neutral information in the endless struggle between environmentalists and the power industry....

[Joe]

I will reiterate my previous stand again - the problem is not Walmart, but Walmart in isolation. There is no Walmart in medicine or healthcare or education, which employees of Walmart can use. Why? because the high paid workers in the US is basically a 'rentier' class who act to protect their interests, while decimating low wage earners.

Max's blog has an excellent posting by Dean Baker today, see http://maxspeak.org/mt/archives/001822.html

Sure Walmart has many faults, but it is not the devil. Falling prices are good for living standards, if they fall across the board.

[Alberich]

Thanks to econotarian.org here is a paper that highlights wal-mart as a yet job creator:

http://economics.missouri.edu/Working_Paper_Series/2002/WP0215_basker.pdf

though not by much.

[save_the_rustbelt]

Not to dend Wal-Mart, but...

1) If they obey the law they certainly have the right to create lousy jobs.

2) If we hadn't encouraged the destruction of 5.5 million manufacturing jobs the economy would be much different.

3) If we hadn't encouraged illegal immigration American workers would be making better wages as carpenters, dry wallers, etc.

[anne]

http://delong.typepad.com/sdj/2005/12/it_takes_a_pote.html

Mark Thoma sent Brad DeLong the excellent column by Frank Rich, but otherwise did not post competitively post it :)

[bill]

2% - you read that correctly - 2%

That's the reduction in retail employment as a result of Wal-Mart entry into a county's labor market according to the UC Irvine study. Also:

1.Overall employment increased.
2.The effect of price decreases propping up household purchasing power - particularly low-income households - was likely but not estimable.

These conclusions are hardly revelatory.. the other side of the coin is that Wal-mart turns out to be a great economic development tool. If I worked for a jurisdiction on economic development planning and said I have an idea for corporate recruitment that will, in the end, reduce your county's reliance on employment in the lowest-paying sector(s) by about 2%, but then increase OVERALL employment, there would be no end to my career as a consultant to communities nationwide. How on earth is that a bad economic development outcome for counties, cities or neighborhoods? But I can understand the desperation Prof. Krugman must feel while struggling to pump out two columns a week.

The main problem with all of this literature is that of data aggregation. Truly, who really cares about countywide labor market impacts when the vast majority of the population lives within counties of more than one Wal-Mart? In other words, asking and answering the question of county impacts can hardly be called "local" labor market study. The important geographic designation, where policy debate and reality are tested, are in retail "trade areas," or subjurisdictional retail areas that cross compete - including big box and downtown/specialty retail.

So what of these questions:
Were those Mom & Pop stores in rural counties paying family wages or even grocery union-equivalent wages before a Wal-Mart opened and outcompeted?

What of the reduced price impacts of Wal-Mart for low-income purchasing power in addition to reduced fuel consumption/spending due to centralized retail offered by a Wal-Mart discount store?

How relevant are these studies when they are examining the impacts of Wal-Mart discount store expansion during the 80s through early 1990s? Better yet, how is endogeneity of economic decline in rural farm towns (farm credit crunch in the 80s, declining ag prices post-NAFTA) controlled in a lot of these studies if at all? Wal-Mart doesn't much expand their discount store line, but rather Supercenters which compete directly with union wage-paying national grocers: is the specificity of this issue treated seperately or even adequately? The retail and economic reality in a lot of these counties, particularly rural, are dramatically different now than 20 years ago because, in part, of the exurban migration effect of higher-income households.

And why is it even considered a public good for consumers to pay artificially high grocery prices when grocery labor is willingly provided for market price rather than bargained agreement?

All of these studies are unsatisfactory for addressing the above questions, which are far more relevant to public policy, community planning, and economic development decisions faced by communities and their residents.

Maybe Wal-Mart simply needs to offer cheap, made-in-China Scandinavian-style furniture and offer Swedish meatballs while you browse.

[jalrin]

Some basic politcal theory might be useful here. Even if Wal-Mart was in fact a job creator, it would still be bad for America. The simple fact is that a Republic cannot survive having large powerful entities flouting the law the way Wal-Mart does. Wal-Mart must either be brought into compliance with our legal system, or be destroyed the same way any other entity that engaged in such behavior would be. If IKEA decides to behave the way Wal-Mart does, it would need to suffer the same fate.

P.S. 5% of all studies are wrong even if you do everything perfectly and so the Irvine study is not a revelation from God.

[bill]

jalrin:

I believe you are confused as to the issue of Krugman's column, Mark's mention of it, and my response. The compliance of Wal-Mart relating to labor laws is an entirely different issue than the economic effects of Wal-Mart as measured empirically in economic literature.

And, as I recall, Wal-Mart is under investigation for various labor issues and is the defendant in a class-action discrimination suit. Those issues are not relevant to whether or not economists have any solid ground, in terms of published or forthcoming research, on which to condemn Wal-Mart due to its refusal to pay union or "family" wages. The fact is the "literature" is mixed at best, much of which is in fact funded by proponents and opponents of Wal-Mart. Economists are barely getting their heads around county-level impacts, which I criticized heavily because county-level data is completely inappropriate for understanding economic interaction of retail sectors.

Meanwhile, nearly all studies, except a few by Emek Basker at Missouri, even attempts to understand the lower-price benefits to purchasing power, particularly for lower-income households that overwhelmingly shop at Wal-Mart, as opposed to - say - Costco, whose stores are just as big, create just as much traffic, offer the same merchandise as mom & pop stores, sell the same large quantity of goods made in China, threaten the same mix of businesses as Wal-Mart, only Costco chooses to pay higher labor costs than they necessarily have to AND Costco is more popular with those politically inclined to oppose Wal-Mart.

A few weeks back, the Oregonian did a profile of the difference in economic wellbeing of regional Wal-Mart and Costco employees, including health and bennies. You know what the difference was? Less than $3,000 annually per employee. That's hardly a stark difference. The fact is, this is all a tempest in a teapot.

I challenge any Oregonians reading this blog and response to name one single Oregon town that has clearly exhibited weak economies and blighted downtowns as a result of a Wal-Mart opening.

[anne]

"A few weeks back, the Oregonian did a profile of the difference in economic wellbeing of regional Wal-Mart and Costco employees, including health and bennies. You know what the difference was? Less than $3,000 annually per employee. That's hardly a stark difference. The fact is, this is all a tempest in a teapot."

Huh? So, I guess everyone at Wal-Mart is making over $100,000 a year, but even that would leave a $3,000 gains as a nice figure.

[anne]

Again, a $3,000 a year salary and benefit difference for retail workers is huge and hugely significant.

[anne]

http://www.nytimes.com/2005/10/26/business/26walmart.ready.html?ex=1287979200&en=e9a0f5ce669f026e&ei=5090&partner=rssuserland&emc=rss

October 26, 2005

Wal-Mart Memo Suggests Ways to Cut Employee Benefit Costs
By STEVEN GREENHOUSE and MICHAEL BARBARO

An internal memo sent to Wal-Mart's board of directors proposes numerous ways to hold down spending on health care and other benefits while seeking to minimize damage to the retailer's reputation. Among the recommendations are hiring more part-time workers and discouraging unhealthy people from working at Wal-Mart.

In the memorandum, M. Susan Chambers, Wal-Mart's executive vice president for benefits, also recommends reducing 401(k) contributions and wooing younger, and presumably healthier, workers by offering education benefits. The memo voices concern that workers with seven years' seniority earn more than workers with one year's seniority, but are no more productive.

To discourage unhealthy job applicants, Ms. Chambers suggests that Wal-Mart arrange for "all jobs to include some physical activity (e.g., all cashiers do some cart-gathering)."

The memo acknowledged that Wal-Mart, the world's largest retailer, had to walk a fine line in restraining benefit costs because critics had attacked it for being stingy on wages and health coverage. Ms. Chambers acknowledged that 46 percent of the children of Wal-Mart's 1.33 million United States employees were uninsured or on Medicaid....

[anne]

ex=1288501200&en=ac9edfbdf2f9a81f&ei=5090&partner=rssuserland&emc=rss

November 1, 2005

A New Weapon for Wal-Mart: A War Room
By MICHAEL BARBARO

BENTONVILLE, Ark. - Inside a stuffy, windowless room here, veterans of the 2004 Bush and Kerry presidential campaigns sit, stand and pace around six plastic folding tables. Open containers of pistachio nuts and tropical trail mix compete for space with laptops and BlackBerries. CNN flickers on a television in the corner.

The phone rings, and a 20-something woman answers. "Turn on Fox," she yells, running up to the TV with a notepad. "This could be important."

A scene from a campaign war room? Well, sort of. It is a war room inside the headquarters of Wal-Mart, the giant discount retailer that hopes to sell a new, improved image to reluctant consumers.

Wal-Mart is taking a page from the modern political playbook. Under fire from well-organized opponents who have hammered the retailer with criticisms of its wages, health insurance and treatment of workers, Wal-Mart has quietly recruited former presidential advisers, including Michael K. Deaver, who was Ronald Reagan's image-meister, and Leslie Dach, one of Bill Clinton's media consultants, to set up a rapid-response public relations team in Arkansas.

When small-business owners or union officials - also employing political operatives from past campaigns - criticize the company, the war room swings into action with press releases, phone calls to reporters and instant Web postings....

[anne]

The strong strong guess is that "bill" is from the Wal-Mart war room.

[jalrin]

Bill,
I suspect Anne is right because the assertion that $3,000 is not a big deal to a struggling family is absurd. A few examples why:
In my community, if the Wal-Mart employees had that $3,000 they would not be stuck in the slums. They could rent a modest but good apartment where their children would have a safe place to play and their own room.

In Addition the $3,000 would be enough to pay for eyelgasses for two children, a semester's worth of textbooks at the local university, and a several hundred dollar savings cushion that would enable the family to deal with car breakdowns and the like without being gouged by the wicked payday lenders and their 400% interest rates as they currently. It would also make it practical to use a bank for their checking needs without having to pay Wal-Mart for check cashing.

It is obvious that everything I just listed is much more than a tempest in a teapot.

[asiequana]

I come from a small 7,000 person farming town in Northern Wisconsin called Shawano (pernounced Shaw-no). About 5 years ago a Wal-Mart Super Center opened up. At that time there were 2 independent grocers and 1 national chain. There is one main street with restaurants, clothing stores, bars, hair dressers, gas stations, etc. Maybe in total 25-30 store fronts. 5 years later there is no increase in the number of boarded up store front on main street. The 2 independent grocers went out of business but one new one opened up in its place. The national chain grocer closed it's old store and opened a new much larger store. In that 5 years the population increased to 8,000.

My sister used to work at one of the independent grocers as a cashier. Now she works for Wal-Mart as a cashier. From what she tells me the salary and benefits are not any better or any worse at Wal-Mart. She also claims to like it better. The Wal-Mart is opened 24 hours where as the independent it replaced was not. The selection is well beyond what used to exist - the ocean fish is actually fresher because Wal-Mart has better, more efficient distribution. Wal-Mart employs many of the town's mentally and physically handicapped. Wal-Mart may have fewer people per square foot at any given point in the day but there is more square footage and the store is open 24 hours so they need three shifts instead of two. When I was an unskilled worker most of the unskilled job opportunities were minimum wage restaurant jobs and they were not as easy to get as you would think. If you walk into Wal-Mart and fill out an application they will almost hire you on the spot. Wal-Mart has had no impact on the higher paid skilled job market, which is small in my home town to begin with. and of course prices on everyday necessities are lower in absolute dollar terms. Unemployment has not gone up but has actually gone down in the last 5 years. One final point, if Wal-Mart did not exist in Shawano you would not be able to buy organic milk at 11:00pm.

Now after I've said all this I must point out that I've said very little about some other trends that may also be impacting this positive experience. My home town is about 30-40 minutes from Green Bay. The drive used to be over an hour. What changed was that a four lane highway was built where there used to be a 2-lane county highway that passed through 2 other small towns with 25mph speed limits. So on the outskirts of town near the highway entrance ramp new homes are being built by people living in the town and commuting to work in Green Bay which is a much bigger job market as well as having higher paying jobs. People living in Green Bay have moved here because the land is cheaper and they can get a bigger house for their money. Also the town is near an Indian reservation which opened a casino a few years before Wal-Mart came. From what I'm told most of the Indians on the reservation are getting sizable dividend checks from the casino.

My point being is the negative anecdotal stories are usually meaningless because they are too generalized and ignore the broader context of other influential factors evolving locally or nationally so Wal-Mart tends to get blamed for things it isn't directly responsible for. Though I would agree that Wal-Mart's labor practices, though maybe not breaking the letter of the law, are certainly trying to push the law to the line as much as possible.

[shrhrhd]

So how much does a cashier at costco earn per month?
cause you guys are mixing me up