This paper estimates the effect of Wal-Mart expansion on retail employment at the county level. Using an instrumental variables approach to correct for both measurement error in entry dates and endogeneity of the timing of entry, 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-Mart's vertical integration. No spillover effect is detected in retail sectors in which Wal-Mart does not compete directly, suggesting Wal-Mart does not create agglomeration economies in retail trade at the county level. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Wal-Mart is the largest retailer and the largest private employer in the United States. The competitive pressures created by large retailers have long been controversial, and Wal-Mart's growth has raised concerns about its economic impact on workers, communities, and competitors. This paper aims to dispel some of the myths regarding Wal-Mart and to replace them with a systematic accounting of what is known about Wal-Mart's impact on the U.S. and global economy. The paper begins by exploring the source of Wal-Mart's competitive advantage. It then examines some of the economic effects of Wal-Mart: how Wal-Mart stores affect local labor markets, consumer prices, product selection, local and global competitors, and suppliers. I then turn to Wal-Mart's interaction with public policy issues in matters of global trade as well as state and local legislation on wages, benefits, zoning, and subsidies.

We analyze the effect of Wal-Mart's entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Mart's entry on competitors' prices of 24 grocery items across several categories. Wal-Mart's price advantage over competitors for these products averages approximately 10%. On average, competitors' response to entry by a Wal-Mart Supercenter is a price reduction of 1-1.2%, mostly due to smaller-scale competitors; the response of the "Big Three" supermarket chains (Albertson's, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercise, in which we test for Wal-Mart's effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.JEL Codes: L11, L13, L81

We analyze the effect of Wal-Mart's