Wal-Mart: A Progressive Success Story
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.
Wal-Mart: A Progressive Success Story
November 28, 2005
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
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.
Attempts to limit the spread of Wal-Mart and similar “big box” stores do not just limit the
benefits of lower prices to moderate-income consumers, they also limit the job opportunities that
Wal-Mart and other retailers provide. More puzzling is that some progressives have described
Medicaid, food stamps, the EITC, and public housing assistance as “corporate welfare.”4 The
right response to Wal-Mart is not to scale back these programs but to expand them in order to
fulfill the goal of making work pay.
Productivity is the principal driver of economic progress. It is the only force that can
1 Visiting Scholar, New York University’s Wagner Graduate School of Public Service. The author has never
received payment from Wal-Mart of any kind. E-mail: email@example.com.
2 Global Insight, 2005, The Economic Impact of Wal-Mart.
3 Arindrajit Dube, Barry Eidlin, and Bill Lester, October 2005, “The Impact of Wal-Mart Growth on Earnings
throughout the Retail Sector in Urban and Rural Counties,” Institute of Industrial Relations Working Paper Series,
University of California, Berkeley.
4 Wal-Mart Watch, 2005, Low Prices At What Cost? Annual Report 2005.
If Wal-Mart were committed to the welfare of its more than 1.3 million “associates,” as it
calls its workers, then it would push to expand these public programs. Instead, Wal-Mart and the
Walton family have generally worked against the progressive issues that would benefit its
employees, including funding campaigns advocating the repeal of the estate tax. Recently, Wal-
Mart has come around to endorsing a higher minimum wage, but this limited step is outweighed
by its consistent funding for attempts to roll back progressive priorities that would benefit its
workers. Unlike support for true corporate welfare, advocating steps to make work pay would
have little impact on Wal-Mart’s shareholders or its bottom line; it could, however, make a large
difference for its employees.
The American economy has witnessed a large increase in the return for skills over the last
decades. Driven largely by technology, but also by globalization, the benefits of education and
training are larger than ever before. The most fundamental solution to this is to invest in the
education and training necessary to ensure that all workers can succeed in the global economy.
This note reviews the economic evidence on the impact of Wal-Mart on consumers, the
impact of Wal-Mart on its own workers and workers in the retail sector, and the impact of public
subsidies on Wal-Mart. It then asks if Wal-Mart could make significant changes in wages and
benefits and concludes with a recommended progressive policy response to Wal-Mart.
The Progressive Benefits of Everyday Low Prices
A range of studies have found that prices at Wal-Mart are anywhere from 8 to 39 percent
less than its major competitors. For example, Emek Basker summarizes research by UBS
Warburg and herself:
[The UBS Warburg] study found that Wal-Mart’s prices were 17-
39% lower than competitors’ prices in the three “Wal-Mart cities,”
and that average prices at other grocery stores were 13% lower in
the Wal-Mart cities than in Sacramento. I repeated Currie and
Jain’s analysis using a subset of 24 drugstore products from their
data set… For these items, Wal-Mart’s prices were 23% lower on
average than competitors’ prices in the Wal-Mart cities.
Competitors’ prices in Wal-Mart cities were lower than
Sacramento prices for most, but not all, items; on average,
drugstore prices were 15% lower in Wal-Mart cities.5
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
5 Emek Basker, 2005, “Selling a Cheaper Mousetrap: Wal-Mart’s Effect on Retail Prices.”
Leibtag (neither researcher received support from Wal-Mart).6 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.7 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).
Table 1. Benefits for Food Consumers
Food At Food Share
Source: Data from Bureau of Labor Statistics, June 2005, Consumer Expenditures in 2003 and author’s calculations.
Although the Hausman-Leibtag study is suggestive of the potentially huge impact of
Wal-Mart, it only considers food prices, does not sum up the benefits for the country as a whole,
and includes the impact of superstores other than Wal-Mart.
Global Insight was hired by Wal-Mart to quantify the national benefits of Wal-Mart’s
low prices. It estimated that “the expansion of Wal-Mart over the 1985-2004 period can be
associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in
commodities (goods) prices, and a 3.1% decline in overall consumer prices… This amounts to a
total consumer savings of $263 billion by 2004, which is the equivalent of $895 per person or
$2,329 per household.”8
According to Global Insight’s macroeconomic model, the lower rate of inflation led to
smaller nominal wage increases throughout the economy, although this estimate is grounded in
macroeconomic modeling assumptions and is not based on any data on he impact of Wal-Mart
on retail or other wages. As a result, they estimated that the net increase in purchasing power in
6 Jerry Hausman and Ephraim Leibtag, October 2005, “Consumer Benefits from Increased Competition in Shopping
Outlets: Measuring the Effect of Wal-Mart.”
7 Note that this estimate effectively incorporates the difference in convenience from shopping at Wal-Mart, a factor
generally omitted from other estimates of this kind.
8 Global Insight, 2005, The Economic Impact of Wal-Mart.
2004 was $118 billion, or $1,046 per household. This increase in purchasing power is primarily
the result of Wal-Mart’s contribution to total factor productivity, but is also due to its ability to
bargain for lower prices for imported goods.
Although Global Insight is a highly respected economic consulting firm and the study
was reviewed by several independent economists, its results should still be taken cautiously both
because they have not undergone intensive peer review and for some technical reasons (if
anything, some of these technical issues could mean that Global Insight underestimated the
benefits of Wal-Mart).9 The Global Insight results are generally consistent with Hausman-
Leibtag and with Basker, who found that the entry of a Wal-Mart leads to a 1.5 to 3 percent
reduction in selected retail prices in the short run and a 7 to 13 percent reduction in prices in the
The Impact of Wal-Mart on Retail Workers
received 8,000 applications for 525 jobs with wages starting as low as $6.75 per hour.10 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.
Workers in the retail sector tend to have below-average skills and experience and,
consequently, tend to be paid below-average wages. The median hourly wage for a retail worker
in the United States is about 25 percent below the average hourly wage. This differential has
been roughly stable for the last two decades and is consistent with the earnings differential in
other industrial economies and in parts of the United States that do not have any Wal-Marts.
While retail jobs are great for some people at some times, they are by no stretch of the
imagination the best jobs in the economy.
The key questions are how jobs at Wal-Mart compare to other jobs in terms of wages and
benefits and how Wal-Mart affects the local job market. The following subsections address
In the spring of 2004, a new Wal-Mart opened up in Glendale, Arizona. The store
9 One issue is that the Global Insight study relies on the officially measured CPI, which does not reflect the direct
effect of lower prices at Wal-Mart, a factor known as “outlet substitution bias.” If Global Insight used an unbiased
measure of prices, they would have found larger effects. Two other technical issues could also affect the results,
although the direction of these effects is unclear. Unlike the Hausman-Leiptag study, Global Insight estimates
“savings” not “welfare improvements.” It does not take into account the change in convenience as a result of
shopping at Wal-Mart. In addition, Global Insight made no attempt to control for the potential endogenaity of Wal-
Mart’s decision to open stores.
10 Christine L. Romero, 4/17/2004, “Job Hunters Flock to New Wal-Mart,” Arizona Republic.
Wages at Wal-Mart Jobs Compared to Other Retail Jobs
The mere fact that more than 1.3 million Americans work at Wal-Mart demonstrates that
its compensation is at least as good as the alternatives, which could mean similar jobs in the
retail sector, jobs in other sectors or unemployment. One might want to know how jobs at Wal-
Mart compare to similar jobs in the retail sector. Ideally these estimates would compare similar
occupations and levels of experience in the same geographical location and incorporate factors
like the quality of the work experience and the prospects for advancement. Nothing resembling
these ideal data are available.
Nevertheless, the available data is consistent with the premise that Wal-Mart pays wages
that are comparable to the retail sector. Global Insight used a new data set provided by Wal-
Mart to compare wages for seven positions at Wal-Mart to similar occupations in the same
geographical area in 2004. It found that Wal-Mart paid an average wage of $9.17 for these
positions, compared to $8.46 for a sample from the Bureau of Labor Statistics (BLS) weighted to
match the geographic distribution of Wal-Mart jobs. Global Insight, however, did not publish
results for a full set of occupations or wages.
The Global Insight story is consistent with other data. Arindrajit Dube and Ken Jacobs
estimate that Wal-Mart’s median hourly wage was just below $9 in 2001.11 This is similar to the
national median wage for jobs in general merchandise (Wal-Mart’s category of retailing) which
paid $8.34 per hour, and in retail more broadly which paid about $9.24 per hour.12 Note that
these national medians are not adjusted to reflect the fact that Wal-Mart jobs are more
concentrated in low-wage states and thus overstate the relevant comparison wage.
Wal-Mart itself reports mean hourly wages of $9.68. These are somewhat below the
2004 national average of $10.29 for general merchandise and $12.58 for retail as a whole. Dube
and Steve Wertheim adjust retail wages to match Wal-Mart’s geography and find that Wal-
Mart’s mean wages are 12.4 percent lower than the retail sector.13 Dube and Wertheim do not
attempt to control for occupation, experience or other job-related factors that are standard in
labor economics studies and thus their data do not prove that Wal-Mart pays similar employees
less. In addition, they did not analyze median wages which appear to behave differently form
Wal-Mart does, however, pay significantly lower wages than those earned by one group
of employees: unionized grocery workers in major cities. These unionized workers make an
estimated 20-40 percent more than Wal-Mart workers, a fact that is reflected in a similar
magnitude mark-up of prices at unionized grocery stores.
11 Dube and Jacobs, op. cit. They use data provided by Wal-Mart in the course of discovery for a lawsuit and report
that 54 percent of workers are paid less than $9 per hour.
12 Dube and Jacobs themselves, however, report average wages of $9.70 at Wal-Mart compared to $14.01 at other
stores. It appears that their $14.01 is for California (a higher wage state) and that they limit their data to large
retailers (although Wal-Mart replaces both small and large retailers). Moreover, this nearly $9,000 annual
difference is implausibly large. It is hard to imagine Wal-Mart being able to fill jobs if it pays $9,000 less than other
employers – unless the other employers are paying well above market wages and causing unemployment.
13 Arindrajit Dube and Steve Wertheim, October 16, 2005, “Wal-Mart and Job Quality – What Do We Know, and
Should We Care?”