Does Wal-Mart Increase Poverty Rates?

A new study claims that Wal-Mart raises poverty rates in the counties where its stores are located.

A study published in the latest issue of Social Science Quarterly is the first to examine the effect of Wal-Mart stores on poverty rates. The study found that nationwide an estimated 20,000 families have fallen below the official poverty line as a result of the chain’s expansion. During the last decade, dependence on the food stamp program nationwide increased by 8 percent, while in counties with Wal-Mart stores the increase was almost twice as large at 15.3 percent. "After controlling for other factors determining changes in the poverty rate over time, we find that both counties with more initial Wal-Mart stores and with more additions of stores between 1987 and 1998 experienced greater increases (or smaller decreases) in family poverty rates during the 1990’s economic boom period," Stephan Goetz a Professor of Agricultural and Regional Economics at The Pennsylvania State University states. Although Wal-Mart employs many people living in its communities, for most, the hours worked and the wages paid do not help these families transition out of poverty.

Another effect is that the closing of "mom and pop" stores following the appearance of a store leads to the closing of local businesses that previously supplied those stores including: wholesalers, transporters, logistics providers, accountants, lawyers and others. The authors state that "by displacing the local class of entrepreneurs, the Wal-Mart chain also destroys local leadership capacity." They encourage community leaders to think about programs and policies in anticipation of helping those displaced by the arrival of the chain.

[Editor's note: Full access to this article is only available to subscribers, or for a fee.]

Full Story: Wal-Mart and County-Wide Poverty

Comments

Comments

Michael Lewyn's picture
Blogger

questionable assumptions

The article assumes "that the relative differences in costs among places did not vary materially over time." But if Wal-Mart charges lower prices than competing stores, it lowers the cost of living - which means that the actual poverty rate in areas served by Wal-Mart is actually lower than federal poverty statistics (which fail to consider cost of living) suggest, which means that the whole argument falls apart.

So you're suggesting that

So you're suggesting that it's okay if people fall behind their national peers as long as consumer goods are also more affordable? The cost of living is very low in much of the 'third world.' By your reasoning, wouldn't that make extremely low incomes in the same areas *just fine*?

Michael Lewyn's picture
Blogger

To turn the question around...

Would you suggest that a $20,000 income (roughly the federal poverty level for a family of four) is really a decent standard of living in places like San Francisco where rents are sky-high? Of course not. You can't intelligently measure poverty without considering regional differences in cost of living.

What the paper actually did.

The simple hypothesis tested was whether counties in which WM operates 'experienced greater increases (or smaller decreases) in family-poverty rates during the 1990s'.

It did not give a reason for this change in the abstract.

So, lewyn, it doesn't matter whether the prices charged lower the cost of living. It matters, in this paper, whether the introduction or continued operation changed poverty rates in a county. The natural follow-on questions are things like preferential location of stores, whether the store is a major employer (or has driven out jobs), etc., not whether there are regional differences in COL.

Best,

D

Touché!

guess this proves it is important to actually read the article!

Michael Lewyn's picture
Blogger

Maybe I don't understand the point, but ...

If the store raised the poverty rate, it still could have actually raised the standard of living (and thus lowered actual poverty) if it lowered prices significantly.

Suppose, for example, that the store lowers blue-collar wages by $25 per year (thus raising the formal poverty rate slightly) but lowers prices by $55 per year. Aren't people better off?

More than just lower prices.

lewyn,

The point is that conclusions arising from this paper are limited. There are many independent variables to test in order to tease out the relative importance of factors involved in whether/why WM raises poverty rates. That is: there is a correlation here, but causation has not been shown due to the multitude of factors involved. A question in my mind is: would these local businesses have failed anyway if WM hadn't come in? Another would be (if I could read the paper) what is the r^2 of the findings? Are they strong?

So, when you write [b]ut if Wal-Mart charges lower prices than competing stores, it lowers the cost of living - which means that the actual poverty rate... what hasn't been controlled for is, say, whether individuals' transportation costs are increased due to the centralization of commerce at the big box (closure of locally-owned businesses), forcing some to travel additional distances to shop (a cost in both time and money, thus not raising the standard of living). This would increase fuel expenditures, possibly offsetting price gains.

Merely lowering prices is not enough to judge whether that offsets job losses, increased transportation costs, increased taxpayer costs due to WM's benefits package, loss of community leadership and identity, etc. - none of these raise the standard of living. You would have to show how your assertion negates the factors detailed in the press release, and - unless I missed it somewhere - you haven't done that sir. A better way to back your claim is to show before-after wages or purchasing power, rather than using a figure that represents a 1¢/hour change in wages (what's the likelihood of _that_ being true?).

All that aside, this is a first paper. The questions that it raises have to be addressed before we can conclude with some certainty that a likely expected outcome of WM coming to an area is an increase in poverty. I'd like to see a couple more papers finding this before I'm comfortable saying it is so.

Best,

D

Sound and Fury

Don't worry, lewyn. Some of us realize are familiar enough with economics and "real" values to understand your comment.

Dano, I'm confused as to why you would attack lewyn's comments, which simply suggested that more factors should be considered, by countering that...more factors should be considered... Wasn't that his original point? Perhaps you should focus on reading comments for what they say instead of seeing them as opportunities to show how clever you're not.

Daigoro

"Keep an open mind, but don't let your brain fall out."

Hyperbole

Thank you Daigoro. It's certainly possible that I misread Michael's comments, but I don't see him saying what you claim, hence all the words I wrote - IMO none of which look like I was 'attacking' them. And if you would be so kind to offer a suggestion on how I can get a partial tuition refund for those econ classes I took, that would be great, as according to you they were worthless. Thank you in advance.

Best,

D

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