Effects of Wal-Mart on the U.S. Labor Industry – Effects on Employment Levels

The effects of Wal-Mart entry on the level of employment in the retail sector has been ambiguous with some studies showing Wal-Mart to increase employment levels while others indicating such levels to decline. Yet other studies indicate mixed results using different measures. One study in the latter category was conducted by Basker (2004) who aimed at quantifying the effects Wal-Mart had on retail employment levels. The study employed OLS and IV methods to analyze the data on Wal-Mart openings, planned openings and employment levels. The findings of the OLS evaluation in the study indicated that opening of Wal-Mart in a county resulted in an increase of approximately 40 jobs in the year of entry but subsequent elimination of up to half of such created jobs by the fifth year of operation (Basker, 2004, p. 12). Using the IV measurement, the results of Wal-Mart entry on the employment levels were noted to be largely negative. For instance, Basker (2004) notes that in the years immediately following entry of Wal-Mart, the IV assessment indicates a loss of 40 to 60 jobs. However, the net effect on the jobs in the retail sector in a five-year period, even using the IV measure was marginally positive (Basker, 2004, p. 12).

The results of a different study however indicated dominant negative effects of Wal-Mart entry on the employment level in the retail sector. In their study about the effects of Wal-Mart on employment and earnings, Neumark, Zhang and Cicarrella (2008) argue out that the entry of Wal-Mart results in a reduction of approximately 150 workers in the retail sector (p. 405). This, they noted, occurred since each additional employee resulting from the entry of Wal-Mart corresponded to a loss of 1.4 workers in other retail establishments as they try to achieve cost efficiencies to compete effectively with Wal-Mart. Accordingly, Neumark, Zhang and Cicarrella (2008) concluded that Wal-Mart’s entry led to a 2.7 percent decline in the average employment in the retail industry (p. 405).

The adverse effect of Wal-Mart entry on the employment level can be buttressed further by considering employment beyond the retail sector. This arises since Wal-Mart indirectly competes with other establishments that do not operate in the retail sector, for instance the establishments operating in the wholesale sector. Considering such effects, Basker (2004) notes that Wal-Mart entry leads to a decline of about 20 jobs in the wholesale industry. However, Wal-Mart entry was not associated with any changes that could result from agglomeration effects in industries such as hospitality and automobile (p. 15). Basker also did not find Wal-Mart’s entry to be related to changes in the employment levels in the manufacturing industry (2004).

Other effects of Wal-Mart on the employment level in the U.S have been argued based on its strategy to import a substantial amount of goods from low cost countries. The Economic Policy Institute (EPI) for instance argues out this effect by considering the trend in Wal-Mart’s contribution to the US’s total imports and exports in the period from 2001 to 2006. Since Wal-Mart is a retailer, EPI (2007) report notes that it has contributed little in form of exports in the period between 2001 and 2006 thus having no positive effect on employment that arises from hiring of workers to support increased export. In terms of imports, the report notes of the increasing contribution of Wal-Mart in fueling the increase in U.S imports from china, noting Wal-Mart’s imports from China to have increased from $9.5 billion in 2001 to $26.7 in 2006 (2007, p. 2). The contribution of Wal-Mart’s trade with China to the U.S. trade deficit with China, according to the EPI report, accounted for almost 111,400-job displacements in 2001 with a subsequent increase to 301,100 displacements by 2006. Comparing such labor statistics with trade statistics, the EPI notes that the contribution of Wal-Mart towards job displacement has been higher than its contribution towards trade deficit (11.2 % and 9.3 % respectively). Such relatively higher effect on the labor industry compared to the trade could be a result of Wal-Mart’s indirect labor effects on other sectors.

The statistics on the effects that Wal-Mart has had on the employment level buttresses its impact on the American labor industry. Firstly, such effects arise from its direct effect on competing retailers who are forced to consider labor cuts as a way to reduce their costs to compete effectively with Wal-Mart. Secondly, Wal-Mart effects result from indirect competition with sectors such as the wholesale traders who could be forced to close shop due to Wal-Mart’s vertical integration. In this respect, rather than being suppliers to the big retailers, wholesalers are forced to compete with Wal-Mart based on prices. Thirdly, Wal-Mart could affect employment levels by pressurizing its suppliers to provide supplies at low prices such that the suppliers cut their labor costs by laying off workers to avoid running into losses. Finally, the impact of Wal-Mart on the employment level in the U.S arises from its increasing importation of goods that would otherwise be provided by U.S firms. Through such increased importation, Wal-Mart contributes to job losses as manufacturing jobs are transferred to low-wage countries from where Wal-Mart sources its products.

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