Friday, July 12, 2013

Will Walmart Create Any Extra Jobs If It Opens In DC?

The DC City Council passed a living wage bill on Wednesday over the strong objections of Walmart. The company threatened to walk away from opening stores in three planned sites within the city if the bill becomes law. Now the bill heads to Mayor Vincent C. Gray (D)’s desk, where its future is uncertain.

Walmart has pushed hard to open stores in many cities, claiming that it will create local jobs and spur economic development. But the evidence from past cases paints a different picture: Walmart destroys as many jobs as it creates and doesn’t stimulate local businesses.

Walmart has claimed that the living wage bill, which would require retailers with sales of $1 billion or more and stores of 75,000 square feet or larger to pay workers a minimum of $12.50 an hour, is “arbitrary and discriminatory.” Activists argue the company can afford to pay higher wages and that it’s about making sure workers earn enough to live on.

The showdown between DC and the largest private employer in the country closely mirrors one that took place between it and the city of Chicago in 2006. That city had also proposed a living wage law, but after Walmart threatened to abandon plans to open up stores the mayor vetoed it.

The lessons from the fallout of that battle have implications for DC. After the Walmart opened up on the west side of Chicago, economist Joseph Persky of the University of Illinois Chicago and his colleagues conducted a rigorous study of the impact on employment by going door to door for three annual surveys. They talked to businesses in the area that had overlapping product lines with the giant retailer before and after the opening. The study found that businesses in the immediate proximity of Walmart had about a 40 percent chance of closing in the two years following the opening. The chance of closing decreased the further away a business was from Walmart. These figures are likely conservative, the authors write, as they weren’t able to look into how many new businesses failed to open thanks to Walmart. But a different study of Florida found that the company’s entrance suppressed new business openings.

This didn’t just mean losing area businesses, but also losing jobs. The researchers estimated that nearly 300 jobs were lost after Walmart opened. The company asserts that it employed 426 workers at its store, 310 of whom were “sales associates,” many of which were probably full-time positions. Therefore, the researchers gave a generous estimate that just 320 full-time jobs were created – just about equal to the number of jobs destroyed by the store opening up.

The authors conclude that there is no evidence of a stimulus effect on new businesses. “Overall, these conclusions support the contention that large-city WalMarts, like those in small towns, absorb retail sales from nearby stores without significantly contributing to local economic development,” they write.

This doesn’t come as a surprise to economists. “There’s only so much consumption that each store sustains,” Virginia Parks, urban geographer at the University of Chicago, told ThinkProgress. Rather than creating more business, large retailers simply suck it up from elsewhere. “Retail doesn’t spur economic development,” she added. “It responds to economic development, follows economic development.” If DC wants to spark growth, it needs to encourage businesses that actually create goods and services to open up, which have a much higher multiplier effect.

DC’s law wouldn’t just impact Walmart, but would also apply to large stores such as Costco, Home Depot, Target, and Macy’s. But paying $12.50 an hour would be a big shift for the giant retailer, as it currently pays workers 28 percent less on average than competitors. Costco, meanwhile, already pays its workers $21.96 an hour. Yet it gets much more revenue and profit from each employee and generates a higher return for investors.

Walmart’s low wages and paltry benefits also come with a big price tag for taxpayers when workers have to turn to public assistance to get by. Workers at just one location use around $1 million in public benefits.

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