A new report released this week by Penn State University’s Center for Economic and Community Development says that Wal-Mart stores actually “stifle” a lowering of the poverty rate in communities where it locates. “Community leaders hoping to expand their region’s employment base by ‘landing’ a Wal-Mart will be disappointed,” says the report’s author, Dr. Stephen Goetz. “What we think is happening is that, although Wal-Mart may increase the real purchasing power in a community by offering lower-priced goods, the store is so tremendously efficient in deploying its workers that the net employment effect is zero.” Counties that gained a Wal-Mart store experienced smaller reductions in family poverty rates during the 1990s than did counties not gaining a Wal-Mart store. The study found that the effect of a Wal-Mart on poverty was statistically significant. The ability to decrease their poverty rates of those counties that gained a Wal-Mart during the decade was reduced by about 8% relative to those counties that did not gain a new store. Goetz also found that Wal-Mart does not deliberately seek out impoverished communities to locate new stores. The study found evidence that the chain avoids poverty-stricken areas when it locates new stores. As for why poverty rates would be higher, the study says,”The county poverty rate could rise because the chain pays its workers relatively low wages. This would especially be the case if these workers had previously earned higher wages in retail establishments that were driven out by Wal-Mart. However, more subtle factors may also come into play. First, the owners of the mom-and-pop type retail operations that are driven out of business often represent the leadership class of the local community. As these retail operations are lost, so is the civic capacity needed to deal with local problems of a communal nature, and for economic growth to occur. Second, philanthropic capacity to deal specifically with local needs is destroyed as local business leaders lose the source of their livelihood.” The study also found that “the higher poverty rate that is attributable to the presence of a Wal-Mart store means that more residents of the community become eligible for public assistance or welfare programs. Because these programs are in turn funded by taxpayers, the payments represent a direct transfer to the corporation’s bottom line. In effect, taxpayers subsidize the operation of the chain, and these payments can offset any savings consumers may realize by buying goods at a lower cost.” To make matters worse, Wal-Mart also often asks for corporate welfare from local communities. “Local officials are often asked by the Wal-Mart corporation to provide subsidized land and infrastructure improvements,” Goetz writes. “This kind of subsidy typically is not available to existing mom-and-pop stores and other local businesses.” The study undercuts the claim by Wal-Mart and local officials that “the payroll and other taxes paid by the stores as a benefit that justifies payment of the subsidy. However, Wal-Mart is a retail enterprise and does not export goods outside the local region, as a manufacturer such as Hershey Foods or Toyota does. More specifically, retail enterprises are not generally part of what economists call the export base. Instead, a new retail store largely displaces existing retail activity and jobs, rather than bring new money into a region. At best, the store increases retail volume in the vicinity of the store, but this comes at the expense of the surrounding communities that see their retail dollars disappear. Thus, in the relevant region the area from which retail customers are drawn to a store, there is no net regional change in economic activity, except that which is induced by the higher real incomes resulting from lower prices.” In conclusion, the new study says that “Company officials point out that the stores make goods available to the poor that they would otherwise not be able to afford; yet the chain appears to avoid high-poverty areas as a principle of corporate location strategy. The results of the study summarized here suggest that the chain also creates costs to taxpayers in the form of greater local poverty than would occur in the absence of the chain. These costs must be added to other local infrastructure-related subsidies that the chain receives to assess the net cost of having a store in a community. In the end, these public subsidies are transferred dollar for dollar to the corporation’s bottom line.”
For similar economic impact studies of an unflattering nature to Wal-Mart, search the Newsflash database by “economic impact”. The full 16 page study released this week, is available on the web at http://cecd.aers.psu.edu/pubs/PovertyResearchWM.pdf.
