Walmart’s big lie: No, it doesn't create jobs!

Research shows that destroying jobs is an essential component of the retail giant’s anti-worker business model

Published August 5, 2013 4:00PM (EDT)

Employee protesting in front of Walmart                                (AP/J Pat Carter)
Employee protesting in front of Walmart (AP/J Pat Carter)

Does Walmart create jobs? That question is at the heart of the debate currently raging over its plans to open stores in Washington, DC. Last month, labor groups scored a major victory when the DC City Council passed a bill requiring Walmart and other big box retailers to pay their workers a living wage of $12.50 an hour. The mega-store has threatened to pull out of DC if the bill, which requires the signature of Mayor Vincent Gray, becomes law. (Gray has not taken a position but is said to be leaning against the measure).

One theme that Walmart and its defenders keep hitting, hard, is jobs. Walmart, they say, would bring badly needed employment to a city where the jobless rate is 1.1 percentage points greater than the already alarmingly high national rate. This argument sounds compelling, especially because this time, it’s not only Walmart’s flacks and the usual right-wing ideologues who are making it. Even the liberal Matthew Yglesias argued that the bill would be “a serious misstep” because it would kill "job opportunities.” (To be fair, Yglesias later appeared to back down from this claim.) Some of my liberal, normally pro-labor friends have made similar arguments.

The problem is, this argument is dead wrong. Contrary to Walmart’s self-glorifying mythology, the retailer is anything but a job creator -- in fact it is a huge job killer. Not only that, destroying jobs is an essential component of Walmart’s anti-worker business model. Let’s put aside Walmart’s happy talk and examine the cold, hard facts.

First, let’s look at the impact of Walmart on local labor markets. The largest, most rigorous study conducted on the subject is this peer-reviewed article from 2008. Its lead author is economist David Neumark, who is no wild-eyed liberal. (See, for example, this anti-minimum wage op-ed he wrote for the Wall Street Journal).

Earlier studies did not adequately deal with selection bias: i.e., the problem that when and where Walmart chooses to open new stores is not random, but tends to be correlated with other variables. Those confounding variables make it difficult to determine whether local employment outcomes are causally related to Walmart‘s entry, or to something else. I’ll skip the technical details, but suffice it to say Neumark and his co-authors devised a sophisticated methodology that accounts for the selection bias. Using data from over 3,000 counties, their results show that when a Walmart store opens, it kills an average 150 retail jobs at the county level, with each Walmart worker replacing about 1.4 retail workers. These results are robust under a variety of models and tests.

Other strong studies found similar results. A 2008 peer-reviewed study that looked at Maryland concluded that Walmart’s presence significantly decreased retail employment, by up to 414 jobs. And a 2009 study by Loyola University found that the opening of a Chicago Walmart store was “a wash," destroying as many jobs as it created: “There is no evidence that Wal-Mart sparked any significant net growth in economic activity or employment in the area,” according to the report. In short, when Walmart comes to town, it doesn’t “create” anything. All it does is put mom-and-pop stores out of business.

But the local studies tell only part of the story. To get a full picture of Walmart’s disemployment effect, you need to look at the whole economy, not just local labor markets. Walmart is a vast and enormously powerful organization: it’s the biggest company in the country (in terms of revenue), as well as the largest private employer not only in America, but in the world. As such, it has the power to make and break labor markets.

Many writers and researchers have looked closely into Walmart’s effect on its suppliers. Here’s what they found: in its cutthroat drive for lower prices, Walmart squeezes suppliers to deliver goods at the lowest possible cost. Suppliers who resist Walmart’s relentless pressure to cut labor costs to the bone risk having their contracts canceled. Walmart’s demands have driven some suppliers, such as Vlasic, into bankruptcy. It’s forced others, like Rubbermaid, to ship American manufacturing jobs to China and other low-wage countries. Academic studies like this one have documented Walmart’s impact on employment outside the retail sector.

None of these findings should be surprising, least of all to Walmart’s free market cheerleaders. If they understood Walmart’s anti-worker business model, they would grasp that cutting labor costs is the bedrock of its strategy. Unlike other retailers such as Costco and Trader Joe’s, which invest in their workers, Walmart’s policy is to pay wages so miserably low that it forces many of its workers onto public assistance. The other way Walmart reduces labor costs is by doing business in a way that eliminates as many jobs as possible.

Some of Walmart’s defenders explicitly defend its brand of low-road capitalism. They celebrate it as productivity-generating “creative destruction.” Indeed, if you produce the same level of output using fewer labor inputs, you will by definition increase productivity. In theory, this is terrific, since gains from productivity can be shared, making us all richer. But in practice, this hasn’t been happening. Between 1973 and 2011, productivity soared, increasing by 80 percent, but compensation for the median worker increased by only 11 percent. In our winner-take-all economy, the gains from productivity are growing disproportionately to capital, and to the highest-earning employees.

In the post-war era, Walter Reuther’s Treaty of Detroit between autoworkers and what was the largest employer in America, General Motors, set labor standards that ushered in an era of widely shared prosperity and unprecedented economic growth. Today, Walmart is America’s largest employer, and the effect of its anti-worker policies on our economy has been catastrophic.

There is a way to restore good jobs and economic prosperity to America, but it is not the Walmart way. The way forward requires empowering workers so that they can claim their fair share of productivity gains. Living wage initiatives like the one in DC are a modest step toward that end. Moreover, the economic stimulus of a living wage would do what everyone on both sides of the controversy say they want, which is to create jobs. Even Henry Ford understood that paying workers decently was good for business and good for the economy. That Sam Walton didn’t has been a tragedy for the American worker.

By Kathleen Geier

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Related Topics ------------------------------------------

Capitalism Dc Jobs Labor Minimum Wage Walmart