Wal-Mart, which has been prickly about criticisms of its low-cost business model, opened itself up to a lively debate among economists Friday...
WASHINGTON — Wal-Mart, which has been prickly about criticisms of its low-cost business model, opened itself up to a lively debate among economists Friday about how the world’s largest retailer affects the economy.
The all-day session, the latest effort by Wal-Mart to repair its reputation, included rosy findings from a Wal-Mart-commissioned report and mixed results from studies done by other economists. It was attended by about 100 people in the media and academia.
The seminar may have raised more questions than answers on Wal-Mart’s impact on jobs, earnings and individual communities, but in the end the company appeared to make progress toward its goal of appearing more open to change.
“I learned a lot about Wal-Mart,” Ray Bracy, Wal-Mart’s vice president of corporate affairs, said in a closing address. “We are trying to listen more to be a better company.” Bracy promised that Wal-Mart would share more data in the future.
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However, some participants said Wal-Mart was taking a chance by inviting scrutiny.
“I think this is a gamble by opening up to more research,” said David Neumark, a senior fellow at the Public Policy Institute of California, who presented findings that Wal-Mart’s presence causes earnings to fall. “Some will be good, and some will be bad.”
Wal-Mart’s critics have argued that the retailer’s low-cost model has bad effects on the economy and that its low pay and benefits drive down those at other companies trying to compete with Wal-Mart.
But Wal-Mart has long argued that its low-priced goods help raise the standard of living, particularly for low-income shoppers, and help control inflation. By holding its own economic conference, Wal-Mart appears to be trying to have some control over the information being disseminated.
Wal-Mart’s study, conducted by Global Insight, an economic-forecasting company, offered a positive assessment of the company that was in line with findings from some economists but were starkly different from others.
“Wal-Mart has been an economic positive to the U.S.,” said Chris Holling, executive director at Global Insight. He also emphasized that the study found that there was no evidence that Wal-Mart pays its workers below-market wages, and said its low prices were not from driving down wages for workers, as its critics contend, but from its own economic efficiencies.
The study, conducted by a team of 18 economists who were given unfettered access to Wal-Mart’s data on wages, benefits and real estate, found that the expansion of the retailer over the 1985 to 2004 period saved American households on average $2,329 by 2004, estimating that it lowered the Consumer Price Index by 3.1 percent.
Impact on employment
The study also found that Wal-Mart had a positive impact on employment nationwide, generating 210,000 jobs by 2004, a 0.15 percent increase relative to the number of jobs that would have existed without Wal-Mart.
The study did report that Wal-Mart caused nominal wages to decline by 2.2 percent, but that was more than offset by the fall in consumer prices, creating an increase in real disposable income of 0.9 percent.
On the other hand, Wal-Mart causes wages to fall for workers in towns where it operates, depresses pay for unskilled laborers and increases Medicaid costs.
“Residents of a local labor market do indeed earn less following the opening of Wal-Mart stores,” said Public Policy Institute economist Neumark.
Neumark’s study, “The Effects of Wal-Mart on Local Labor Markets,” co-authored with Junfu Zhang and Stephen Ciccarella, concludes that total payroll wages per person declined by almost 5 percent where Wal-Mart stores are located due to the company’s low wages.
Another conference participant, Michael Hicks, an economist at the Air Force Institute of Technology at Wright-Patterson Air Force Base in Dayton, Ohio, studied Wal-Mart’s effect on government anti-poverty programs and found that Wal-Mart increased Medicaid costs an average of $898 per worker.
Hicks found that a 1 percent increase in Wal-Mart’s market share in a state is accompanied by a 1.5 percent increase in Medicaid spending. Wal-Mart insures fewer than half its employees.
Hicks found that government aid to needy families decreased by 3.3 percent with every 1 percent increase in Wal-Mart’s market share.
Emek Basker and Pham Hoang Van, economists at the University of Missouri, studied the relationship between Wal-Mart’s growth and the growth of U.S. imports, examining Consumer Price Index data in 23 markets between 1984 and 2003 along with apparel import prices and market share information. The pair found that Wal-Mart’s strategy of importing goods lowered wages for unskilled workers.
In their presentations, both Wal-Mart’s Bracy and Global Insights’ Holling emphasized that Wal-Mart did not influence results. The study was also overseen by an advisory committee including representatives from the Brookings Institution and the American Enterprise Institute.
Still, Wal-Mart and Global Insight faced tough questions from the audience, including why benefits were not included in the wages studied. Some expressed concern that the study didn’t address the fact that Wal-Mart may be entering mainly high-growth regions, possibly inflating the positive impact it has on the economy.
Meanwhile, Wake up Wal-Mart, a union-backed anti-Wal-Mart group, tried to steal Wal-Mart’s thunder by holding a news conference before the seminar announcing that it was creating a national association for Wal-Mart workers to help employees change the company.