Does Walmart Depress Local Wages?

Two economists find that Walmart, the nation's largest employer, has the power to depress wages in some rural counties, particularly in the Southeast.

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In rural counties in some states, Walmart exerts such power over the local labor market that it depresses wages by more than six percent, according to a study conducted by two University of Connecticut economists.

Alessandro Bonanno and Rigoberto Lopez have been examining Walmart’s power in local labor markets for years. They’ve found that in urban counties, Walmart has a minimal capacity to affect local wages. But in rural counties, especially in the Southeast, the two contend, Walmart’s power to bid down wages is three times that found in cities.

The two economists are measuring Walmart’s “monopsony” power. If monopoly power is the ability of a single producer of a good to fix prices paid by a number of buyers, then monopsony power is the ability of a single buyer to fix prices among a number of sellers.

Walmart is the nation’s largest private employer. In effect, it buys labor — the workers who keep its stores stocked and running. Bonanno and Lopez contend that Walmart “exerts a significant amount of power over workers in rural areas located in south central states.…”

Walmart’s power varies by region, the economists say. In the Northeast, for example, the company’s power over wages is “practically negligible.” There is no evidence that Walmart is significantly depressing wages nationally, Bonanno and Lopez write.

But “rural counties in south-central states, as well as in other selected states where the company’s presence is strong, are where Wal-Mart monopsony power is the highest, exceeding 6% in Kansas, West Virginia and Arkansas, and above 5% in five states (Colorado, Kentucky, Idaho, Illinois, Oklahoma and Utah),” they wrote in an earlier paper. “On the other hand, counties in the Northeast, show minimal degrees of Wal-Mart’s monopsony power over workers, with Vermont showing” the least effect on local wages.

So, in rural markets in the South, Walmart depresses wages to such an extent that it could warrant attention from antitrust regulators in the Department of Justice, Bonanno and Lopez. Nationally, however, the two economists don’t support this kind of intervention.

Bonanno and Lopez’s paper brings to mind at least two issues. 

First, in December 2010 the departments of Justice and Agriculture convened a hearing in Washington, D.C., to examine the antitrust implications of Walmart’s increasing share of the local grocery market. This was one of five hearings the Obama administration held on antitrust activity in the agriculture and food businesses.

The grocery business has been rapidly consolidating over the last three decades. In 1992, the top 20 grocery retailers accounted for 39 percent of all sales. By 2010, the top 20 grocers controlled 65 percent of U.S. grocery sales.

Much of that increase comes from Walmart. (Here is part of the discussion from the Washington D.C. hearing.)

While the hearing dealt with Walmart’s growing power as a buyer and seller of food, it did not examine whether Walmart had monopsony power over wages paid to workers in the communities where the retailer operates. Bonanno and Lopez’s paper indicates that DOJ and some states ought to be keeping track of Walmart’s power over local wage rates.

United Food and Commercial Workers
Walmart has been increasing its share of the total grocery sales in the U.S.
In the end, however, the Obama Justice Department took no action of any kind — against Walmart or any other sector of the business of food — after five hearings and nearly two years of investigation.

Second, Bonanno and Lopez’s paper reminded us of a study conducted by two Pennsylvania State University scholars who found that having big box retailers in a town depressed growth in local income. (See story here.)

Stephan Goetz and David Fleming found that communities with higher proportions of small, locally-owned businesses had larger increases in income. “Local ownership matters in important ways,” said Goetz, an economist. “Smaller, locally owned businesses, it turns out, provide higher, long-term economic growth.”

Larger retailers, such as Walmart, tended to depress income growth generally in the communities where they operate.

“Although these types of (larger, non-local) firms may offer opportunities for jobs, as well as job growth over time, they do so at the cost of reduced local economic growth, as measured by income,” Goetz and Fleming wrote. “Small-sized firms owned by residents are optimal if the policy objective is to maximize income growth rates.” 

 

 

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