The Causes and Consequences of Wal-Mart's Growth

Abstract

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.

Competition among the big and the small

“…Wal-Mart, the largest retailer in America and the pioneer of the large discount chain store, experiences the same public wariness regarding its business practices. Even though several of the criticisms raised might be justified, we find it fair to say that the public often dismisses the fact that the presence of large retailers fosters much lower prices than small ones, thus making a wider array of goods accessible to a larger population of customers (Basker, 2007).…”

“…By so doing, we capture within the same preference framework the two specifications of the CES model that have been used in the literature (Vives, 1999;Matsuyama, 1995). 3 The difference between "big" and "small" firms is thus apprehended through both firms' behavior and consumers' preferences, one being the mirror image of the other.…”

Leading by Example: Values-Based Strategy to Instill Ethical Conduct

“…Many consumers, therefore, also care about the underlying processes for how prices are determined and quality is delivered (Freeman, 1994). For example, Wal-Mart (with 1.3 million employees in the United States alone) is praised for its low prices, efficiency, and brand power (Basker, 2007) but is also strongly pressured by external stakeholder groups regarding the retailer's ostensibly low wages and working conditions for employees (Palazzo and Basu, 2007).…”

Adolescence and the Path to Maturity in Global Retail

“…Clearly, some of these efficiency gains are due to the replacement of skilled full-time workers with less-skilled part-time workers, which could impact the overall wage structure. However, Basker (2007) notes that the existing empirical evidence reveals that Walmart's net impact on jobs in the US retail and wholesale sectors is small, and likely positive, though small negative effects have been found for retail wages. In their study of Mexico, Atkin, Faber, and Gonzalez-Navarro (2015) find that entry by foreign supermarkets has little impact on average municipality-level income or unemployment, while the impact on consumer welfare is positive and significant.…”

“…In their analysis of Walmart's impact on the US grocery industry, Hausman and Leibtag (2007) conclude that the short-term benefit to consumers (mainly due to lower prices) of Walmart's entry is on the order of 25 percent of food expenditures. In this journal, Basker (2007) claimed that, by at least one measure, Walmart alone may have accounted for almost half of the 35.5 percent increase in the productivity of the US general merchandise sector between 1982and 2002, echoing a McKinsey Global Institute (2001 report attributing the bulk of the acceleration in overall US productivity growth in the mid-1990s to innovations introduced by Walmart and subsequently adopted by its rivals. In their analysis of retail globalization in Mexico, Atkin, Faber, and Gonzalez-Navarro (2015) conclude that entry by foreign supermarkets led to welfare gains on the order of 6.2 percent of initial household income.…”