David R. Henderson  

Wal-Mart's Positive Effects

The Big Gulp Ban... Does Portugal Show the Signali...

Devin G. Pope and Jaren C. Pope have recently had a Working Paper published by NBER. It's #18111 (May 2012) and it's cleverly titled, "When Walmart Comes to Town: Always Low Housing Prices? Always?" Here's an ungated version. In it, they examine empirically the effect of arrival of new Walmart stores on the prices of houses within a small radius. Their idea is that such a measure will give the net effect of the benefits of having nearby Walmart and the other stores it attracts and the costs of congestion, traffic, etc.

Why does this matter? They point out that opponents of Walmart sometimes use a decrease in surrounding property values as an argument against allowing a Walmart in their neighborhood. They cite, for instance, "Top 10 Reasons Why Wal-Mart Is Wrong for Northcross."

The Popes' bottom line is:

Using a difference-in-differences specification, our estimates suggest that a new Walmart store actually increases housing prices by between 2 and 3 percent for houses located within 0.5 miles of the store and by 1 to 2 percent for houses located between 0.5 and 1 mile.

One other thing I found useful about the study is their terse review of the literature on other effects of Walmart. Here are the guts of the two main paragraphs on those other effects:
Phone surveys suggest that 84% of households in the U.S. shop at Walmart in a given year with 42% of households reporting to be regular Walmart shoppers (Pew Research Center, 2005). These surveys also show that lower-income households are more likely to shop at Walmart than upper-income households. In fact, Basker, (2005b), Hausman and Leibtag (2007), and Basker and Noel (2009) have shown that Walmart "Supercenters" that sell groceries offer many identical food items as other grocers at an average price that is substantially lower than their competitors. Hausman and Leibtag (2007) also find that these lower prices translate into a significant increase in consumer surplus.

Despite the consumer benefits from the expansion of supercenters into new geographic markets, there is often significant opposition and controversy when Walmart tries to open a new store. One concern of opponents is the impact that a new Walmart will have on local employment opportunities and wages. There is a small literature that has analyzed this common concern including Basker (2005a), Hicks (2007a) and Neumark et al. (2008). The findings of these studies have been mixed with Basker (2005a) and Hicks (2007a) finding positive effects on employment and/or wages, while Neumark et al. (2008) found negative effects.

I found the reference to Hausman and Leibtag intriguing. Following it up, I found this in a link provided by Mark Thoma:
The indirect effect of Wal-Mart occurs "even if you never enter a Wal-Mart," Hausman said, since supermarkets tend to drop their prices in competitive response to Wal-Mart's. In addition, Wal-Mart does not raise its prices after it has driven out the competition, he said.

"The indirect price effect is 5 percent even if you never go into a Wal-Mart," he said.

Hausman presented graphs to show that Wal-Mart's impact on consumers varies by income category: For families with incomes less than $10,000 annually, a super center makes a 30 percent difference in what they can buy. "The marginal utility on the poor is greater," he noted.

The rate of overall improvement in consumer welfare thanks to a Wal-Mart super center's direct and indirect effects on the cost of food in a community averages 3.75 percent, Hausman said.

"Getting a 3.75 percent improvement in consumer welfare is greater than any tax reform or other policies. And while Wal-Mart pays its employees less -- which does affect local wages -- you still can't beat that 3.75 percent. If economists could improve consumer welfare by that much, we'd all be heroes," Hausman said.

The last name "Pope" is not that common. I notice that one of the authors teaches at Brigham Young University, where another economist named Clayne L. Pope teaches. I remembered that name because Clayne Pope is a co-author of a famous study of the opinions of economists on various policy issues, a study that found that they tend to agree a lot on issues like rent control, tariffs, and minimum wages. In fact, I cited their study in my Introduction to The Concise Encyclopedia of Economics.

I also notice that there's an economist named Arden Pope at Brigham Young University. Assuming these are all sons of Clayne, I'm guessing he's a proud papa.

Comments and Sharing

CATEGORIES: Business Economics

COMMENTS (9 to date)
AC writes:

I didn't read the studies on wages, but if Wal-Mart creates a bunch of low-skill jobs, won't that decrease average wages without making people worse off?

collin writes:

Nothing against the study but it seems like it would have been reasonable to test other retail outlets. (A better opportunity costs model) I generally agree with conclusions but I remain unconvinced Wal Mart is the answer. It could simply be a good anchor store, Target, Costco, Best Buy or even Circuit City, that is causing the effect. (Or better yet the answer could be proximity to a freeway entrance.)

Secondly, due to the short study cycle without the downturn, the study may prove Wal Mart was very smart where they placed the stores instead of Wal Mart effect on home prices. I lived in ex-burb in Minnesota and Wal Mart was planned three years before it was built. I am guessing the relationship here is more a circular cycle. (population feeds a new Wal Mart which feeds more population.)

BZ writes:

@AC : ?! Increases in labor demand do not cause the price of that labor to decrease, but to increase. Unless you are suggesting that a bunch of high wage computer and biotech employees are all going to quit their jobs to don the Blue Aprons. :)

JohnE writes:

There are actually four faculty members in BYU's economics department with the surname Pope, from two different families. Clayne and Rulon are brothers. Arden is not related to them. I believe Jaren and Devin are Arden's sons.

David R. Henderson writes:

Thanks. Maybe “Pope” is a more common name than I had thought.

Ryan P writes:

Huh. I was happy when that Walmart opened up, and the adjacent shops and stores at Northcross are nice too. I hadn't realized there was a group dedicated to preventing it from being there.

KnowPD writes:

So now I can add higher property taxes to the list of externalities that our new Wal-Mart will impose on our neighborhood. There are other endogenous effects of building the new Wal-Mart in our area, new streets, parks, etc. supported by the developer and this was part of the pitch to get city approval.

AC writes:

BZ, it's not an undifferentiated lump of labor. What I'm saying is that if you add a bunch of low-wage jobs, other things equal, then look at average wages, they will be lower (I'm not sure of the methodology of these studies, but I'm sure someone has reported the calculation this way)

Casual Observer writes:

I used to be enthusiastic about store like Wal Mart and such, but as the years have rolled by, my views have shifted due to direct observation.

Analyzing community/social decline is often complicated and messy, since there are so many interacting factors -- none of which are usually prime movers in and of themselves, but some factors do have much more profound and accelerating affects than others. Wal Mart, as it currently & in the past does business, is one of those major negative factors.

Over the past 25 years or so, I've noticed a common theme in the small to medium sized communities I've visited & lived in(less than 5K and up to 50K or so respectively) that were healthy, vibrant, interesting, and varied in the economic and social/cultural activities that took place within them prior to Wal Mart and/or other related types of stores establishing themselves within or in close proximity to those communities.

They always become a "hollow shell" -- less economic and social/cultural variety, and activity, and even downright social & economic decay -- often to the point of becoming little purgatories and sometimes even hell-holes (at least from my perspective).

It's not always obvious, nor entirely objective. You need a before & after, on-the-ground, interactive perspective. But in short, somehow Wal Mart and other large chain stores with similar business structures and "values" seem to degrade the human experience wherever they setup shop.

Comments for this entry have been closed
Return to top