There is little dispute that Wal-Mart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Wal-Mart are enormous – a total of $263 billion in 2004, or $2,329 per household.
Even if you grant that Wal-Mart hurts workers in the retail sector – and the evidence for this is far from clear – the magnitude of any potential harm is small in comparison. One study, for example, found that the “Wal-Mart effect” lowered retail wages by $4.7 billion in 2000.
But Wal-Mart, like other retailers and employers of less-skilled workers, does not pay enough for a family to live the dignified life Americans have come to expect and demand.
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Some of the largest price differentials are for groceries, with Wal-Mart’s prices substantially below the prices at unionized chains like Kroger and Safeway.
The most careful economic estimate of the benefits of lower prices and the increased variety of retail establishments is in a paper by MIT economist Jerry Hausman and Ephraim Leibtag (neither researcher received support from Wal-Mart).
They estimated that the direct benefit of lower prices at superstores, mass merchandisers and club stores (including but not limited to Wal-Mart) made consumers better off by the equivalent of 20.2 percent of food spending.
In addition, the indirect benefit of lower prices at competing supermarkets was worth another 4.8 percent of income. In total, the existence of big box stores makes consumers better off by the equivalent of 25 percent of annual food spending. That is the equivalent of an additional $782 per household in 2003.
Because moderate-income families spend a higher percentage of their incomes on food than upper-income families, these benefits are distributed very progressively. As shown in Table 1, the benefits from big box grocery stores are equivalent to a 6.5 percent increase in income for the bottom quintile (average income of $8,201) and a 0.9 percent increase in income for the top quintile (average income $127,146).
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In the spring of 2004, a new Wal-Mart opened up in Glendale, Arizona. The store received 8,000 applications for 525 jobs with wages starting as low as $6.75 per hour.
A Harvard applicant has a higher chance of being accepted than a person applying for a job at that Wal-Mart. Wal-Mart experiences similarly high application ratios at other jobs. These anecdotes strongly suggest that jobs at Wal-Mart are better than the opportunities these workers would have in the absence of Wal-Mart, either other jobs or unemployment.
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Implicit in much of the criticism of Wal-Mart is the belief that the company has enormous resources and could easily pay higher wages or more benefits without making a major sacrifice. After all, Wal-Mart’s mind-boggling $10 billion in profits last year make it appear as if the company could wave a wand and do anything it wants. But Wal-Mart also has a staggering 1.3 million American employees, multiplying the costs of even a modest change in compensation.
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If Microsoft paid each of its employees an additional $5,000 or expanded its health benefits, its profits would be largely unchanged. If Wal-Mart took the same step – and did not pass the cost on to consumers – it would be virtually wiped out.
In the last fiscal year, Wal-Mart had revenues of $288 billion and costs (including taxes and other charges) of $277 billion – a razor-thin profit margin of 3.7 percent of revenues. Even a very small increase in its costs, without a corresponding increase in revenues, would wipe Wal-Mart’s profits out entirely.
WalMart: Helping the Poor, Despised by (some) Urban Liberals
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Originally Posted by Crazed Rabbit
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