Wal-Mart Debate Intensifies 

LAUREN WEBER / Newsday 19nov2005

[More on Wal-Mart]

What began many years ago as a low murmur of discussion has grown into a full-throated debate. It's a question that is engaging activists, economists, legislators and even the company around which the controversy swirls: Is Wal-Mart good for America?

Well, it depends on whom you ask. But what's striking is the extent to which the debate has been characterized by high emotions, conflicting information and prodigious public-relations campaigns. When was the last time a single corporation was the subject of so much hand-wringing and public angst?

The debate has begun to spawn a mini-industry of research by economists and other academics exploring the effects of a corporate giant whose tentacles spread into nearly every corner of American society.

What Wal-Mart says

Earlier this month, Wal-Mart jumped into the fray with what seemed to be a good-faith attempt to measure, definitively, its economic impact on U.S consumers. It released a study by Global Insight, a Boston-based economic research firm that Wal-Mart had commissioned to conduct a year-long study addressing such issues as prices, jobs and wages.

Wal-Mart's study found that Wal-Mart has a largely positive effect on Americans' lives, and that its low prices give consumers more buying power by holding down prices throughout the economy. It also concluded that Wal-Mart jobs generally pay market-rate wages.

But the study did not address some of the most trenchant criticisms of the company. It did not compare Wal-Mart's benefits policies with those of its competitors, nor did it look at whether Wal-Mart's low-wage jobs lead employees to seek out government programs such as Medicaid. That issue was the catalyst for legislation passed earlier this year in both Suffolk County and New York City to force the big-box retailers to pay a greater share of their employees' health benefits.

Wal-Mart's study also largely avoided hard-to-quantify social concerns, such as whether Wal-Mart diverts sales from downtown shopping districts and, in doing so, damages the character of America's small towns and neighborhoods. Even less tangible effects — such as the retailer's using its market dominance to pressure musicians into changing lyrics and CD cover art that it deems objectionable — are not addressed in Wal-Mart's study.

Debate comes to a head

The debate could go up a few decibels this month with the release of the Robert Greenwald documentary, "Wal-Mart: The High Cost of Low Prices," and a week of protests. At the same time, the company is promoting a film, called "Why Wal-Mart Works: And Why That Drives Some People Crazy."

For its part, Wal-Mart has acknowledged that it has opened itself up to criticism, but spokesman Nate Hurst said the company did its study to "serve as a benchmark moving forward. There's so many topics and issues you could go with. We see this as a first step in opening up the dialogue."

Against this backdrop, here's a sampling of what economists and other experts are saying about the company at the heart of the controversy.

Pricing and its influence

Global Insight found that Wal-Mart's presence holds down prices of consumer goods in the U.S. by 3.1 percent. The effect is both direct — Wal-Mart's own low prices — and indirect — suppliers and rivals reduce their prices to sell to or compete with Wal-Mart. In a world without Wal-Mart, you might spend $100 on back-to-school shopping. Because Wal-Mart exists, that same shopping trip will cost you about $97.

Adjusting for inflation, the report says that means Americans saved $118 billion in 2004, or $402 per person, thanks to Wal-Mart.

Another independent study, by economist Emek Basker, found that Wal-Mart was particularly effective at holding down prices on drugstore goods such as aspirin, shampoo and toothpaste.

Jobs are gained and lost

When a new Wal-Mart store opens, the company hires 150 to 350 new employees to staff it. The Global Insight study found that some local retailers shut down after Wal-Mart came to town, so other jobs were lost. The biggest losses occurred at food stores and apparel shops. Overall, the report found, an average of 97 long-term retail jobs are gained each time a new Wal-Mart opens.

In plain English: Every new Wal-Mart creates 150 to 350 new jobs but displaces anywhere from 53 to 253 existing jobs, for a net gain of 97 new jobs. Global Insight didn't address the quality of those jobs — in other words, whether the new jobs paid better or worse than the displaced ones, or had better or worse benefit packages.

But there remains conflict on the topic of job creation, partly because researchers use different (and often exceedingly complex) statistical models, or study different geographic regions.

A team led by David Neumark, an economist at the Public Policy Institute of California, found that Wal-Mart stores actually reduce retail employment by 2 to 4 percent in a given county.

Wages data inconclusive

According to Global Insight, Wal-Mart generally pays wages comparable to other discount retailers. That stands to reason — in today's fairly strong labor market, if the shop around the corner is paying significantly more than Wal-Mart, no one's going to apply for jobs at Wal-Mart; the company would have to raise its wages to attract workers.

But looking at wage data alone is inconclusive. Benefits now constitute, on average, about 40 percent of a worker's total compensation, so critics say a true understanding of whether Wal-Mart offers comparable employment would have to include benefits such as health and disability insurance, pension plan, vacation and sick leave.

Global Insight acknowledged as much: "Many external observers have held that the cost of Wal-Mart's success in offering lower prices has come at the expense of its workers. Coming to a comprehensive position on this issue is beyond the scope of this study. It would require a thorough, comparative analysis of of Wal-Mart's wages, working conditions, and benefits relative to a fair and comparable benchmark."

Some scholars have compared Wal-Mart's wages with those of unionized supermarket employees. That's partly a response to fears that Wal-Mart's supercenters — which include full-scale grocery stores — force local supermarkets to shut down or lower their wages to compete. (Currently, there are no supercenters on Long Island.)

In California, where such fears led to a 5-month grocery strike in 2003, a team of urban planners compared Wal-Mart's wages and benefits with those of union supermarket workers in the San Francisco Bay Area. They concluded that union workers received an hourly wage of $15.30, versus $9.60 for Wal-Mart workers. Adding in benefits, union workers earned an equivalent of $23.64 per hour, almost twice the $11.95 earned by Wal-Mart workers.

Medicaid as a job benefit

In September, the Suffolk County legislature passed a law requiring big-box stores to pay a greater share of their employees' health insurance costs. This law and similar ones proposed around the country — often referred to as "Wal-Mart tax" bills — respond to the concern that retail workers are relying heavily on state-funded insurance programs because their wages aren't sufficient to pay the premiums on company-sponsored health plans.

Michael Hicks, an economist at the Air Force Institute of Technology in Ohio, tested that theory and found that for every new Wal-Mart store, roughly 16 Medicaid cases are added to that county's rolls. In a second study, he concludes that, on average, every new Wal-Mart worker costs a state an average of about $900 in new Medicaid costs.

But advocates of "Wal-Mart taxes," take note: Hicks says his conclusions are "policy-neutral." In other words, such laws are unwarranted because, even if Wal-Mart costs states money for Medicaid programs, the company also adds to county and state revenues through property and sales taxes. These costs and benefits can cancel each other out. (In a parallel policy recommendation, Hicks says Wal-Mart also doesn't deserve tax subsidies as incentives for opening new stores.)

And that extra $900 in Medicaid costs per employee? that's not limited to Wal-Mart, Hicks writes. That figure "is consistent with other studies of the Medicaid costs per low-wage worker across the United States."

All companies that pay their employees low wages — in the retail sector and elsewhere — increase the burden on government safety net programs.

source: http://www.newsday.com/business/ny-bzwal21,0,3809144,print.story?coll=ny-business-leadheadlines 22nov2005