Let's hear it for Wal-Mart -- no single company has a greater effect on the global economy. Some economists even credit Wal-Mart with singlehandedly keeping U.S. inflation in check over the last decade, by ruthlessly leveraging market power to force vendors to keep lowering their prices. That's impressive -- Wal-Mart is a major player in the great game of globalization and will no doubt provide plenty of fodder for "How the World Works."
So let's get started! In an article published yesterday by Yahoo Finance columnist Charles Wheeler, the author makes an intriguing comparison between French and American styles of capitalism. His primary question is whether a little dose of Wal-Mart McJob creation would be a cure for the social troubles that resulted in widespread riots last month. He sets up a tough trade-off: the social welfare, job security, and high unemployment of France against the "wild west" model of the United States, where hey, you may not be able to make a living wage, but you can still get a job.
I don't mean to be snarky (well, yes maybe I do, but it's still a pretty good column) -- Wheeler makes some interesting points about how the Earned Income Tax Credit in the U.S. is an effective way for governments to support low income workers without heavy-handed wage-and-price controls. But the whole article is predicated on an assumption that deserves some examination. Which is: is Wal-Mart really the vaunted engine of job creation that its advocates claim?
Charles Fishman, a Fast Company senior editor whose book, "The Wal-Mart Effect" is due out in January, pointed me to the research of University of Missouri economics professor Emek Basher. In "Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion" Basher compiles some interesting numbers.
To quote from the abstract : "I find that Wal-Mart entry increases retail employment by 100 jobs in the year of entry. Half of this gain disappears over the next five years as other retail establishments exit and contract, leaving a long-run statistically significant net gain of 50 jobs. Wholesale employment declines by approximately 20 jobs due to Wal-Marts vertical integration."
So in sum, there is a small net gain in jobs created per county attributable to each new Wal-Mart store. But 70 jobs are lost for every 100 gained, and it's a good bet that the new jobs are lower paid than the old ones. (As another fairly well-publicized study has demonstrated, Wal-Mart pays such bottom barrel wages that its workers require, on average, $898 dollars of Medicaid coverage.)
So is this the kind of medicine to prescribe for another economy, one that is already already suffering from high unemployment? For a minimal long term gain in new low-wage jobs, rip up the social welfare system. Just imagine the riots that would cause!