The University of Vermont's Independent Voice Since 1883

The Vermont Cynic

The University of Vermont's Independent Voice Since 1883

The Vermont Cynic

The University of Vermont's Independent Voice Since 1883

The Vermont Cynic

Wal-Mart overruns local markets

David Neumark spoke to UVM faculty and students last week about the effects of Wal-Mart on a local labor market. The speech was geared towards economics majors, yet it was open, applicable and accessible to everyone. The speech focused on Neumark’s research of Wal-Mart, which incorporated data sets through 1995 to the present. Wal-Mart is the world’s largest corporation with revenues in 2005 of $285 billion, and its 3600 stores give jobs to 1.2 million workers. The total work force of Wal-Mart stores is greater than the number of high school and middle school teachers in America combined. Wal-Mart controls 19% of grocer market shares in America, and 16% of pharmaceutical market shares. One of the most awe-inspiring traits of Wal-Mart stores, according to Neumark, is their success rate. While the average business fails an average of 75-80 percent of the time, Wal-Mart’s closing patterns are far lower. Similar to the success rate of McDonald’s restaurants – they almost never close. Of 3100 Wal-Mart stores opened in America, only 51 have failed. Neumark’s research did not focused on the aggregate effects of Wal-Mart. But instead on whether the opening of a Wal-Mart creates or eliminates jobs in the retail sector of local markets. He also investigated if the earnings of the local retail sector are disrupted by the opening of a new Wal-Mart. Neumark said of the goal of his research, that “a lot of people ask whether Wal-Mart is ‘good’ or ‘bad.’ There are so many dimensions to that problem that I just don’t know how to answer it.” Instead of creating moralistic claims, the focus of Neumark’s research developed a model to gauge the changes in retail employment and earnings when a Wal-Mart opened in a town. Wal-Mart’s were found to influence an average net decrease of 180 workers in the retail sector of a town, and an average 3% decline in retail earnings of the sector. That 3% decrease, spread over the retail sector, does not mean big cuts in individuals’ wages. Neumark explained the interesting expansion of Wal-Marts throughout the country, from its birth in Benton County, Arkansas. During its early stages in the later 1960’s and early 70’s, the success of Wal-Mart depended largely on word of mouth. Wal-Mart’s would open in counties close to already existing Wal-Mart’s, with a general population that had already heard the benefits of Wal-Mart from their neighbors. This advertising technique was one of the many cost-efficient policies of Sam Walton, founder of Wal-Mart. Among others were the smaller packages of deodorant, and stores being built within a day’s drive of distribution centers, which allowed Wal-Mart to become the biggest retailer in Mexico as well as America. Though Wal-Mart controls a portion of the retail sector in America, Neumark explained that Wal-Mart has not tried to raise its prices in the absence of a competitor. “They not only have to worry about an existing competitor, but a potential competitor as well.”

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Wal-Mart overruns local markets