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Wal-Mart: A Progressive Success Story

12/2005;

ABSTRACT Productivity is the principal driver of economic progress. It is the only force that can make everyone better off: workers, consumers, and owners of capital. Wal-Mart has indisputably made a tremendous contribution to productivity. From its sophisticated inventory systems to its pricing innovations, Wal-Mart has blazed a path that numerous other retailers are now following, many of them vigorously competing with Wal-Mart. Today, Wal-Mart is the largest private employer in the country, the largest grocery store in the country, and the third largest pharmacy. Eight in ten Americans shop at Wal-Mart. 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. 2 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. 3 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. That is where a second progressive success story comes in: the transformation of our social safety net from a support for the indigent to a system to that makes work pay. In the 1990s, President Clinton fought for expansions in support for low-income workers, including a more generous Earned Income Tax Credit (EITC) and efforts to ensure that children did not lose their Medicaid if their parents took a low-paid job. The bulk of the benefits of these expansions go to the workers that receive them, not to the corporations that employ them.

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    ABSTRACT: Contrary to popular opinion and previous estimates, this paper finds that Wal-Mart raises local retail (and possibly non-retail) employment, but has little effect on wages or the number of establishments. The main discrepancy with earlier studies arises because we control for trends that pre-date Wal-Mart's entry. Results indicate that Wal-Mart tends to expand where on-going growth is relatively strong overall, but relatively weak in the retail sector, so most previous work has been biased toward those conclusions. We also identify two reasons why effects are likely smaller now than previously: increased competition and Wal-Mart's shift toward more populous counties.. We thank Wal-Mart Stores, Inc., for providing data on store locations and opening dates; we have no other ties to the corporation. We are also grateful for comments by, staff at the Bureau of Labor Statistics, and participants of a seminar at the Midwest Economics Association meetings. All remaining flaws are our responsibility.

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