“No, Walmart Doesn’t Create Jobs”: Contrary To The Happy Talk, It Actually Kills Them
Because it’s a such a slow news day, and because the DC big box living wage bill is still in the news, I thought I’d write about the Walmart piece I published in Salon.com earlier this week. First, an update on that living wage fight, which I’ve written about before on this site. The bill, which would require Walmart and other big box retailers to pay a minimum wage of $12.50 an hour, passed the DC City Council. It needs the signature of DC Mayor Vincent Gray to become law, but Gray hasn’t received it yet. There have been suggestions that he’s leaning toward a veto and that Council Chairman Phil Mendelson has delayed sending the bill to Gray’s desk because he’s working to shore up support for a veto-proof majority. Walmart has threatened to cancel plans to open new stores in DC if the bill is enacted.
One of the most compelling-seeming arguments that the pro-Walmart forces have been making is that DC should reject the bill and welcome Walmart into the community, because Walmart would create much-needed jobs. So I decided to look at what the research says about Walmart’s impact on employment. Guess what? Contrary to the happy talk, Walmart does not create jobs. Actually, it kills them.
Here’s why: first, at the local level, all Walmart does is put mom-and-pop stores out of business. The overwhelming body of evidence, including the most rigorous peer-reviewed studies, suggests that when Walmart enters a community, the result is a net loss of jobs; at best, it’s a wash. In fact, the biggest, best scholarly study about the impact of Walmart on local employment was done by an economist at University of California at Irvine named David Neumark, who is not exactly a wild-eyed liberal. He’s the kind of economist, actually, who writes anti-minimum wage op-eds for the Wall Street Journal.
The devastating impact Walmart has had on jobs becomes most clear when you go macro, and look at its impact not just locally, but on the national economy. In its relentless quest for low prices, Walmart strong-arms its suppliers to cut labor costs to the bone. What this has meant in practice is that many suppliers have been forced to lay off workers and ship jobs to low-wage countries overseas. Because of Walmart, countless jobs in the U.S. have been lost, mostly in manufacturing.
I’ve been thrilled by the response to my Salon piece — over 5,000 Facebook “likes,” and counting! Thus far, none of the prominent pro-Walmart voices have taken issue with it, because the facts I present are hard to dispute.
Back to the DC controversy: neoliberal pundits and politicians hate the DC living wage bill, because they don’t want to drive Walmart away. The politicians want the photo ops at Walmart openings, where they can boast about bringing “good jobs” — um, well, okay, “jobs,” anyway — into the community.
But when Walmart comes to town, significantly more local retail jobs are destroyed than created. And to the extent Walmart grows and is empowered, even more manufacturing jobs will be lost. If Walmart’s fans understood its anti-worker business model, they would get this. Walmart’s philosophy requires cutting labor costs to a bare minimum, so it makes sense that the company would not only pay workers miserable wages, but also shred as many jobs as possible.
Some of the pro-free market ideologues do grasp this. Here’s Forbes contributor Tim Worstall, for example, with a blog post helpfully entitled: “Of Course Walmart Destroys Retail Jobs: That’s the Darn Point of it All.”
I appreciate the honesty of Worstall and others of his ilk; they celebrate Walmart for its innovation and productivity-enhancing “creative destruction.” Fine. What I don’t appreciate is those pundits who then turn around and claim that Walmart is also going to magically create jobs out of thin air, as so many are doing in the current DC debate (see, for example such gold star hacks as Mona Charen, Star Parker and, inevitably, Fox News).
Let’s be clear: the brave new economic world so many conservatives and neoliberals celebrate necessitates massive job loss. In theory, the gains from productivity brought about by Walmart’s ability to produce more output with less labor inputs are supposed to benefit everyone. But in practice, they’re going almost entirely to the the top, and the economic hit is being taken by those at the bottom. Progressives need to do all they can to change this dynamic. Supporting living wage bills like the one in DC would be a great place to start.
By: Kathleen Geier, Washington Monthly Political Animal, August 10, 2013
“Nothing To Lose But Power”: Wal-Mart Plays Hardball In The District of Columbia
There’s a power struggle going on in Washington right now, not between Republicans and Democrats but between Wal-Mart—which is supposed to open six stores in the District—and the city council, which has a bill pending to require big-box retailers to pay a living wage. As you surely know, Wal-Mart was built on keeping costs as low as possible, particularly labor costs. The model Wal-Mart recruit is someone who has no other employment options and will take whatever they can get. The retail colossus isn’t going to let some uppity city council tell it how much it can pay its employees:
The world’s largest retailer delivered an ultimatum to District lawmakers Tuesday, telling them less than 24 hours before a decisive vote that at least three planned Wal-Marts will not open in the city if a super-minimum-wage proposal becomes law.
A team of Wal-Mart officials and lobbyists, including a high-level executive from the mega-retailer’s Arkansas headquarters, walked the halls of the John A. Wilson Building on Tuesday afternoon, delivering the news to D.C. Council members.
The company’s hardball tactics come out of a well-worn playbook that involves successfully using Wal-Mart’s leverage in the form of jobs and low-priced goods to fend off legislation and regulation that could cut into its profits and set precedent in other potential markets. In the Wilson Building, elected officials have found their reliable liberal, pro-union political sentiments in conflict with their desire to bring amenities to underserved neighborhoods.
For Wal-Mart, this isn’t just about these particular stores. They can make money even if they pay a higher wage at these stores, and with over 10,000 stores around the world, the D.C. locations are a drop in their enormous bucket anyway. It’s about their relationship both to the people they employ and to the communities they locate in. It’s about power, and as far as they’re concerned, power has to reside with Wal-Mart. Their employees do what they’re told and get paid what they’re told, and if they don’t like it they can go find another job. By the same token, the city council gives Wal-Mart what it wants, and if it doesn’t they can try to find somebody else to open a store there.
My guess is that in the end, either the city council will cave or Mayor Vincent Gray will veto the bill (he says he’s considering it). Why? Because Wal-Mart can walk away from the D.C. stores without a second thought, while the council desperately wants both the jobs the stores will bring and the ability for their constituents to have a convenient place to shop. One side has virtually nothing to lose, while the other side has a great deal to lose.
Would Wal-Mart make less money if they paid their employees a little more? Not necessarily. There are other models out there, most notably Costco and Trader Joe’s, which believe that by giving their employees higher wages and good benefits, they can reduce turnover and provide better service, which lowers costs and increases sales. And it works: they’ve achieved steady growth and excellent profits by making their employees happy.
But the idea that the way to deal with employees is to basically treat them like the enemy, which includes not just paying them as little as possible but also reacting to any hint of solidarity among the employees like an outbreak of the Ebola virus, is bred into Wal-Mart’s DNA. Think I exaggerate? Back in 2000, 11 meat-cutters at a Wal-Mart in Texas voted to join a union. The company responded by announcing that it was immediately eliminating the meat-cutting departments at 180 stores and switching to pre-packaged meat, and would eventually eliminate the meat-cutting departments at every store in the country. They don’t screw around, as the D.C. Council has just discovered.
By: Paul Waldman, Contributing Editor, The American Prospect, July 10, 2013
“Dressed Up As A Cheerful Holiday Add-On”: Why Black Friday Is A Behavioral Economist’s Nightmare
There are many, many reasons not to participate in Black Friday. Maybe you like sleeping in and spending time with family more than lining up in a mall parking lot at 2 a.m. Maybe you object on humanitarian grounds to the ever-earlier opening times, which force employees of big-box retailers to cut their holidays short by reporting to work in the middle of the night. (Or, increasingly, on Thanksgiving itself.)
But among the most potent reasons no sane person should participate in Black Friday is this: It is carefully designed to make you behave like an idiot.
The big problem with Black Friday, from a behavioral economist’s perspective, is that every incentive a consumer could possibly have to participate — the promise of “doorbuster” deals on big-ticket items like TVs and computers, the opportunity to get all your holiday shopping done at once — is either largely illusory or outweighed by a disincentive on the other side. It’s a nationwide experiment in consumer irrationality, dressed up as a cheerful holiday add-on.
As Dan Ariely explains in his book, Predictably Irrational, “We all make the same types of mistakes over and over, because of the basic wiring of our brains.”
This applies to shopping on the other 364 days of the year, too. But on Black Friday, our rational decision-making faculties are at their weakest, just as stores are trying their hardest to maximize your mistakes. Here are just a few of the behavioral traps you might fall into this Friday:
The doorbuster: The doorbuster is a big-ticket item (typically, a TV or other consumer electronics item) that retailers advertise at an extremely low cost. (At Best Buy this year, it’s this $179.99 Toshiba TV.) We call these things “loss-leaders,” but rarely are the items actually sold at a loss. More often, they’re sold at or slightly above cost in order to get you in the store, where you’ll buy more stuff that is priced at normal, high-margin levels.
That’s the retailer’s Black Friday secret: You never just buy the TV. You buy the gold-plated HDMI cables, the fancy wall-mount kit (with the installation fee), the expensive power strip, and the Xbox game that catches your eye across the aisle. And by the time you’re checking out, any gains you might have made on the TV itself have vanished.
Implied scarcity: This is when a store attempts to drum up interest in an item by claiming “limited quantity” or “maximum two per customer,” which makes us think we’re getting something valuable when we may not be. It’s a staple of deceptive marketing, and at no time in the calendar year is it in wider use than on Black Friday. (There is also actual scarcity on Black Friday — when stores carry only a 50 or 100 of an advertised doorbuster item — which also introduces a risk that you’ll be 51st or 101th in line and waste your time entirety. Both are bad.)
Confirmation bias: As Derek Thompson points out, many shoppers neglect to factor in the non-cash costs of their Black Friday trip — gas, parking, warranties, and rebates. (To say nothing of the vacation time lost to waiting in lines.) Shoppers want to believe they save money by going out on Black Friday, so they use only their per-item savings in calculating the benefits of their trip. But on a net basis, it’s often not a very good deal.
Irrational escalation: This behavioral quirk is also known as the “sunk cost fallacy,” and it means that people are bad at knowing when to give up on unprofitable endeavors. This happens a lot on Black Friday. If you’ve already made the initial, bad investment of getting up at 2 a.m., driving to the mall, finding parking, and waiting in line for a store to open, you’ll be inclined to buy more than you initially came for. (Since, after all, you’re already there, and what’s another few hundred dollars?)
Pain anesthetization: One of my favorite pieces of shopping-related research is a 2007 paper called “Neural Predictors of Purchases” [PDF] which used fMRI scans of shoppers’ brains to show how deeply irrational the purchasing process is. Researchers found that if a shopper saw a price that was lower than expected, his medial prefrontal cortex (the part of the brain responsible for decision-making) lit up, while higher-than-expected prices caused the insula (the pain-registering part) to go wild. That brain activity had a strong correlation to whether or not the shoppers ended up buying the products or not.
Economists typically think of consumer choice as dispassionate cost-benefit analysis by rational market actors — a bunch of people saying to themselves, “Will having this $179.99 TV now create more pleasure than having the $179.99 in my bank account to do other things in the future?” — but the 2007 study shows that shoppers don’t actually behave that way at all. In fact, they’re choosing between immediate pleasure and immediate pain.
That explains why, on Black Friday, retailers pull out every trick in their playbook to minimize the immediate pain of buying: instant rebates, in-house credit cards with one-time sign-up discounts, multi-year layaway plans, and the like. The problem, of course, is that those methods of short-term anesthetization often carry long-term consequences — like astronomically high interest rates and hidden fees.
Post-purchase rationalization: When we’ve bought something expensive, we tend to overlook its flaws or defects in order to justify our decision. On Black Friday, the investment is more than just financial — we’ve emotionally invested in the post-holiday ritual of standing in line with friends or family and enduring cold, dark misery for the shot at cheap electronics. That excess investment leads to excess rationalization, and coupled with a return/refund process that is a nightmare at many big-box retailers, it leads to people owning a lot of things they’re not very happy with.
In short, if shopping on the other 364 days of the year is the behavioral economist’s version of bringing a knife to a gunfight, going out on Black Friday is going to that same gunfight with a knife made out of Play-Doh. Between retail tricks and your own cognitive flaws, you have almost no chance of actually saving money or making rational decisions. (Plus, you might get trampled.)
Of course, just by telling you to stay home on Black Friday, I may be triggering your reactance bias (the tendency to do the opposite of what someone tells you) and making you want to go bargain-hunting even more. In which case, good luck. You’ll need it.
By: Kevin Roose, Daily Intel, November 22, 2012
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