Wal-Mart’s Effect on Retailers Weaker in City, Study Finds

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Wal-Mart's Effect on Retailers Weaker in City, Study Finds

News Release


[Writer] This is research news from U-I-C – the University of Illinois at Chicago. Today David Merriman, head of economics and professor of public administration, talks about a new study that examined the economic impact of a Walmart store that opened on Chicago’s west side in 2006.

Here’s Professor Merriman:

[Merriman] Walmart is the largest retailer in the United States and has expanded through most rural and suburban areas of the United States. Recently, Walmart has expanded into urban areas. We wanted to study this phenomenon.

The first urban Walmart was in Los Angeles, the second one was announced to be in the City of Chicago in the Austin neighborhood. It was announced that it would open in 2006.

So a group of researchers working between the University of Illinois at Chicago and Loyola University (of Chicago) decided that they wanted to do a study of the effect of this Wal-Mart on the neighborhood in which it was located.

They did that by first doing a baseline study, prior to Walmart’s opening, which surveyed stores in a 4-mile area around the area where the new Walmart would open. Then they did two subsequent telephone surveys. There are about 300 businesses surveyed by telephone and they were asked various things – about the number of employees they had, the kind of wages they paid, who owned the store – that sort of information. Using that information, we were able to track businesses that closed subsequent to Walmart’s opening.

What we did was look at the pattern of closures around Walmart and tried to determine whether stores that were more affected by Walmart’s competition were more likely to close – in particular the stores that were closer to Walmart, we would expect to be more affected by the competition. And we did find a pattern that there were excessive closures, more than you would expect, closer to Walmart.

Using that data, we calculated the number of jobs that those stores that had excessive closures would have provided, and we found in totaling that up that it was about 300 jobs – which is roughly the same amount of jobs that Walmart provides. So, the net effect, we think, on employment was pretty minimal. Walmart provided some new jobs, but the stores that closed – because of Walmart – represented a decline in jobs. And looking at the jobs that were lost, they seemed of similar quality to the jobs that Walmart added. They were relatively low-paid jobs, many jobs that didn’t provide benefits. Most of the jobs that were lost would have been in small businesses, often family-owned businesses, or at least a business in which the owner worked in the business.

We also supplemented our own original data collection by looking at data that the state had collected on sales tax revenues, which is based on retail sales, and also employment, based on the employment security, or unemployment insurance rolls. And looking at those data we were able to discern similar patterns. In particular, looking at those data, we were able to look at the effect of recent economic downturn and whether the recent
economic downturn was really the reason for the excessive closures. And we were able to determine that even accounting for the slide in the economy, we can discern that Walmart didn’t cause an increase in the net number of jobs – or sales.

If you think about this, it’s probably pretty much common sense that if you open a new business in a neighborhood, people will choose to shop at that business rather than other businesses, so the total amount of sales isn’t going to change very much. This is pretty well accepted in the economics literature that changes in retail sales are pretty much a wash.

So we don’t thin the opening of Walmart had a big effect on the number of jobs or the total amount of sales in the neighborhood.

What does this mean? We think what this means is the public policy debate over Walmart shouldn’t be over whether additional jobs are created, but should be about what kind of neighborhood we want, what kind of retailers do we want to support, and how much the government should be involved in the management of the economy and the decisions.

Consumers have chosen to shop at Walmart rather than some other stores. Some people might think that that’s an inappropriate choice in our economy. Other people might think that it changes the character of the neighborhood by having big-box stores, like Walmart, and it hurts established businesses. And they might think there should be government
policy to support that. We don’t take any position on that view, but we think that’s where the debate should be. Those are the kinds of public policy questions about which people should be talking.

[Writer] David Merriman is professor of economics and public administration.

For more information about this research, go to www.new.uic.edu, click on news releases and look for the release dated January 8, 2010.

This has been research news from U-I-C – the University of Illinois at Chicago.

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