May 29, 2005

Wal-Mart Increases Employment

Via Division of Labor, Emek Basker has a paper showing that Wal-Mart does indeed create jobs when it enters a market. The abstract:

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.

I think this picture of Wal-Mart's expansion is interesting:

I bring this up because I am skeptical of a claim often made against Wal-Mart. That is the company decimates downtowns. The reason I'm skeptical is that growing up, I remember visiting towns where the downtown had already declined before Wal-Mart was open for business in the area. In one study I found on Wal-Mart done for Bozeman, MT(where I went for my undergrad) it was the mall on the edge of town which had caused the decline. Wal-Mart had entered the market some years later during the time I was there. The economic impact report had specifcally pointed this out.

This story also reminds me of some research we did looking at the devlopment of Montana. Some guys in my class decided to look at a small town in the area and trace out its life and death. Initially, they thought that the railroad pulling out of the town killed it, but in reality they were last ones to leave. Better roads and highways had made travelling to neighboring larger cities economical.

It may just be a coincidence that shopping patterns shifted the same time Wal-Mart entered the market. The growth in shopping malls coupled with better roads and highways caused a shift which Wal-Mart took advantage of. Also, I think the map shows Wal-Mart to be a fairly young company only expanding outside its home region in the mid eighties. I will have to go through Lexis-Nexis to see if I can find stories from that time frame talking about downtown declines. The real story here is probably just the dreaded shopping mall and roads.

Posted by Bob at 6:47 PM