Wal-Mart Good for the American Working Class?

Jason Furman argues in Slate that, contrary to what organized labor would have you believe, Wal-Mart is actually good for the working class.

A range of studies has found that Wal-Mart’s prices are 8 percent to 39 percent below the prices of its competitors. The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn’t mean much for those of us in the top fifth of the income distribution—we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that’s a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income—unless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.

Where do these low prices come from? Paul Krugman, writing back in 1993, provides an answer: “The most significant American business success story of the late 20th century may well be Wal-Mart, which has applied extensive computerization and a home-grown version of Japan’s ‘just in time’ inventory methods to revolutionize retailing.” Many economists didn’t expect the service sector to contribute much to productivity. Many non-economists still have a hard time believing it has. But Harvard economist Ken Rogoff has the numbers, and they are mind boggling:

    [T]ogether with a few sister “big box” stores (Target, Best Buy, and Home Depot), Wal-Mart accounts for roughly 50% of America’s much vaunted productivity growth edge over Europe during the last decade. Fifty percent! Similar advances in wholesaling supply chains account for another 25%! The notion that Americans have gotten better at everything while other rich countries have stood still is thus wildly misleading. The US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous.

All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, a fresh water system, and public health, what have the Romans ever done for us?

The thing to keep in mind, however, is that the people who own Wal-Mart make a lot of money, and they are therefore evil. Let’s never forget that.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. legion says:

    Unfortunately, there’s a side of this coin the various authors don’t want to add into their calculations… If your job has been eliminated by the surfacing of the Wal-Mart whale in yuor economic puddle, you likely don’t have much of an income to shop with.

    Wal-Mart could be selling Ferrari’s at half-cost, and I still wouldn’t be able to buy one…

  2. don surber says:

    Well, of course it is. Union-generated inflation in the 1970s wasn’t. End of story

  3. madmatt says:

    And exactly what foods are they looking at…walmart has several loss leaders that they sell much cheaper than their competitors…however the other products they carry are the same price or more than target, sears etc. As a matter of fact that is the first thing one of your studies mentions…do you read them or just the headlines…and that “MOST CAREFUL ECONOMIC STUDY” is done by a shill company that is FUNDED BY WALMART…why didn’t you mention that fact?

  4. Legion,

    I used to sell to people who made things for Wal Mart. They would always try to get me to lower prices for them. They would point to the big walmart deal that would generate huge volume as justification. I worked in an industry with relatively good cost information (how much it cost us to make something) and good margins (so we had room to work). My experience with the companies who won the big walmart deal and went out of business was they got to excited about the volume and didn’t watch their bottom line. I had to walk from more than one deal because the numbers they wanted were to low (even with the volume).

    Walmart used to have a strong ‘buy American’ policy. That is gone. But while they could kill a mom and pop store, they still tend to only cause companies to go under when they get to anxious for the deal with walmart that they don’t think it through.

  5. Scott_T says:

    is that the people who own Wal-Mart make a lot of money, and they are therefore evil. Letâ??s never forget that

    As he said after he typed that on a keyboard he bought from Wal-Mart for $9.95. 🙂

  6. floyd says:

    walmart has reduced prices while at the same time eliminating quality in a large variety of products.soon we will have no choice left but to buy orange and blue striped cropped top t-shirts, non-width rated shoes,and various other wash once articles of clothing. not to mention whole varieties of grocery items removed from our tables permanently.walmart revels in telling america to eat crap,wear crap, and buy non repairable items of all kinds. as the middle class fades in america we will be forced to to buy more and more crap as walmart’s [price is all that matters] mentality,destroys the production of quality worldwide.you might say it’s the buyer’s fault, but in reality it is only the fault of a”critical mass” of buyers that tip the scales and leave decent products either out of reach of the middle class or out of production altogether.

  7. James Joyner says:

    Floyd,

    I’m not sure what country you’re living in but where I live the ability to buy an incredibly high variety of foods and other products continues to escalate. We can get virtually any food anyone has ever heard of pretty much any time of the year just about anywhere in the country. And most people can afford most of it.

  8. reliapundit says:

    if you don’t like walmart, then don’t shop there.

    no one is forced to.

    the libs think people who do shop there are too dumb to know it’s REALLYREALLYREALLY bad for them.

    the libs would rather poor folks overpaid for stuff sold by mom&pop stores.

    which is – what – pro-worker!? sheesh.

    the anti walmart schtick is really all about bullies who want to tell everyone else where to shop.

    the same impulse that makes them like the nanny state.

    it’s what makes libs libs, essentially.

  9. Rick DeMent says:

    �The most significant American business success story of the late 20th century may well be Wal-Mart, which has applied extensive computerization and a home-grown version of Japan�s �just in time� inventory methods to revolutionize retailing.�

    Which will be wiped away substantially, if not all together, as fuel prices continue to go up. This is a perfect example of the kinds of productivity gains that are exclusive to a cheap oil economy that flat earth economists never include in their models. Unless a transportation fuel can be substituted with the same cost to produce and the same amount of energy production this very significant slice of productivity will be gone.