Job Turnover and Wages in the Retail Sector: The Influence of Wal-Mart

By Hicks, Michael J. | Journal of Private Enterprise, Spring 2007 | Go to article overview
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Job Turnover and Wages in the Retail Sector: The Influence of Wal-Mart

Hicks, Michael J., Journal of Private Enterprise

"Wal-Mart is making enormous profits and yet it has chosen to go with low wages and diminished benefits... The battle to engage Wal-Mart and force them to examine their corporate values and policies is absolutely vital to America today."

Senator Barack Obama, November 16, 2006

Rarely has a single corporation experienced the widespread scrutiny of its business practices and impact on local communities, businesses and workers, as has Wal-Mart. Indeed, it is difficult to overstate the tone and breadth of the current debate. That at least three United States Senators have specifically criticized Wal-Marts in the weeks leading up to their entrance in the presidential race speaks to criticality of the Wal-Mart debate.

Disclosure: The author of this study owns no stock in Wal-Mart or any related firm (other than that held by the mutual fund companies Vanguard and TIAA-CREF). I have performed no paid consulting services from any retail firm, its developers, local governments or related entities since 2002 (though I continue to field frequent questions on my earlier research). I have received no honoraria related to Wal-Mart research (other than travel costs paid by the Federal Reserve Bank of Richmond in 2001). In short, except for roughly $1,500 purchases of diapers annual since 19991 have no financial relationship with Wal-Mart or any affiliate that I am aware of.

Discussion surrounding Wal-Mart focuses heavily on the role the retailer plays in local employment dynamics, especially wages, job turnover, and job creation and destruction in the retail sector. And while there are many other facets to the Wal-Mart debate, these questions matter for policymakers concerned about local economic development and the role changing retail market structure plays on employment opportunity for local residents. While local officials may play a far more muted role in such matters as local retail location decision than they believe, understanding whether or not to expend resources supporting or opposing a Wal-Mart (or any other business) ought to be informed by at least some understanding of the potential net impact. At the heart of the question are an understanding of Wal-Mart's influence on wages for new and existing workers, and how job creation, separation and turnovers are affected by the entrance and presence of a Wal-Mart store.

In this paper I seek to better inform this debate by combining data on Wal-Mart stores with the recently release Quarterly Workforce Indicators provided by the US Census. This unique data set offers much in understanding the role Wal-Mart entrance pkys in local labor force dynamics. I begin by reviewing previous studies on the local economic impact of Wal-Mart. I then review the data and offer an empirical model to test the impact of Wal-Mart entrance and presence in eight Pennsylvania counties.

Empirical Analysis of Wal-Mart

Stone's (1988) study of the impact of Wal-Mart on small towns and communities in Iowa was the first attempt to measure the impact of Wal-Mart on local communities. This study and other subsequent analysis by Stone and his co-authors present mixed evidence regarding the impact of Wal-Mart stores. Stone found that counties with Wal-Marts, and host towns generally, experience a sharp, but short term growth in retail. He also concludes that Wal-Mart stores locating outside small towns reduced retail employment and businesses within the small towns, even if the overall impact was positive.2 Unfortunately, Stone's study suffered serious methodological limitations that fatally weaken the policy inference. Two of his important failures were largely replicated by many subsequent authors. The first is the absence of variables to control for other factors that may have led to retail decline. Iowa in particular, and many other locations studied were in the midst of significant population changes that could explain much of the retail changes Stone attributes to Wal-Mart.

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