Wal-Mart, Jobs and Consumers

Josh Wright —  13 May 2011

What happens when Wal-Mart comes to town?  One thing is for sure, the line for jobs is long:

In contrast, a new Walmart in Cleveland recently received 6000 applicants for 300 positions, and, not long ago, two Walmart stores in the Chicago area received 25,000 and 15,000 applications. The Cleveland store hired one in twenty applicants. The Chicago hiring rates were far more modest.

HT: (American Thinker).

Meantime, in Washington DC, various groups are protesting the prospect of Wal-Mart coming to town, including picketing the home of a developer.  From the group’s website:

We are not interested in negotiating the terms of Wal-Mart’s arrival. We know the harmful impact that Wal-Mart always has, from thousands of case studies around the country, and around the world. We believe in our hearts, and in our minds, that DC must continue to be Wal-Mart Free.

Other labor-backed anti-Walmart groups are insisting on a community benefits agreement extracting concessions from Walmart, including, apparently, reduced hours of operation (see, e.g. here).

One need not look at the long list of job applicants to figure the social benefits.  But often left out when the policy discussion is framed as unions versus corporations are consumers.  Consider Hausman & Ephraig’s (a version of the paper here) analysis of the impact of Wal-Mart on consumer welfare, finding (looking at the benefits of food prices alone) the following:

We find that an appropriate approach to the analysis is to let the choice to shop at
Wal-Mart be considered as a “new good” to consumers when Wal-Mart enters a
geographic market. Some consumers continue to shop at traditional supermarkets while other consumers choose to shop at Wal-Mart. Many consumers shop at both types of stores. Thus, we specify a utility consistent two level model of choice among types of shopping destinations. We then estimate a fixed effects binomial logit choice model to estimate the parameters of the utility model that differs across households. We use the estimated parameters to calculate the exact compensating variation that arises from the direct variety effect of the entry and expansion of supercenters and find the average estimate to be 20.2% of average food expenditure. We similarly estimate the exact compensating variation from the indirect price effect that arises from the increased competition that supercenters create. We find this average effect to be 4.8%. Thus, we estimate the average effect of the total the compensating variation to be 25% of food expenditure, a sizeable estimate.

Since we find that lower income households tend to shop more at these low priced
outlets and their compensating variation is higher from supercenters than higher income households, a significant decrease in consumer surplus arises from zoning regulations and pressure group tactics that restrict the entry and expansion of supercenters into particular geographic markets.

Note again that these are significant benefits in terms of consumer welfare — and just for food.   Further, these gains are disproportionately enjoyed by low-income households.  Hausman & Ephraig find that household incomes below $10,000 benefit by approximately 50 percent more than average.

Jason Furman (yes, this one) points out that this result is a pretty big deal:

[T]hat’s a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income—unless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.

That’s some pretty low-hanging fruit in terms of policy wouldn’t you say?  Consumers do not have a loud voice in the relevant policy and political debate.   And the anti-Wal-Mart crowd seems to be laboring under the unfortunate assumption that their preferred policy amounts to a mere wealth transfer between Wal-Mart and workers.  Hausman & Ephraig’s results demonstrate the magnitude of the cost to consumers of this economic naivete.  The relative silence of consumer interests should not be confused with the notion that the consumer welfare losses imposed by deterring Wal-Mart entry are not real — or pretending that they are not concentrated precisely on low-income households.

One response to Wal-Mart, Jobs and Consumers


    I live in DC and my daily commute takes me by the blighted stretch where the Wal-Mart store is proposed. It’s a dystopian corner of empty lots, thrift shops, tattoo parlors, liquor stores and an abandoned Chevrolet dealership, among others. Litter and weeds overflow the actual site. The area certaintly could use the jobs and the low-cost goods; there is no decent grocery store anywhere nearby. Just ten minutes up the road is thriving downtown Silver Spring, MD. Right now when I see the need to purchase something at Wal-Mart, I either drive 30 minutes into Maryland or Virginia, or better yet, order from the dot-com. Neither action provides jobs or sales-tax revenue to a DC economy that desperately needs both of them.