Winehole23
01-12-2025, 11:18 AM
What’s going on here? Why would Walmart have such a broadly negative effect on income and wealth? The theory is complex, and goes like this: When Walmart comes to town, it uses its low prices to undercut competitors and become the dominant player in a given area, forcing local mom-and-pop grocers and regional chains to slash their costs or go out of business altogether. As a result, the local farmers, bakers, and manufacturers that once sold their goods to those now-vanished retailers are gradually replaced by Walmart’s array of national and international suppliers. (By some estimates, the company has historically sourced (https://www.reuters.com/business/retail-consumer/walmart-shifts-india-china-cheaper-imports-2023-11-29/) 60 to 80 percent of its goods from China alone.) As a result, Wiltshire finds, five years after Walmart enters a given county, total employment falls by about 3 percent, with most of the decline concentrated in “goods-producing establishments.”
Once Walmart has become the major employer in town, it ends up with what economists call “monopsony power” over workers. Just as monopoly describes a company that can afford to charge exorbitant prices because it lacks any real competition, monopsony describes a company that can afford to pay low wages because workers have so few alternatives. This helps explain why Walmart has consistently paid (https://laborcenter.berkeley.edu/a-downward-push-the-impact-of-wal-mart-stores-on-retail-wages-and-benefits/#:~:text=The%20results%20still%20found%20a,large%2 0grocers%20(17.5%20percent).) lower wages than its competitors, such as Target and Costco, as well as regional grocers such as Safeway. “So much about Walmart contradicts the perfectly competitive market model we teach in Econ 101,” Wiltshire told me. “It’s hard to think of a clearer example of an employer using its power over workers to suppress wages.”
Walmart’s size also gives it power over the producers who supply it with goods. As Stacy Mitchell, a co–executive director of the Institute for Local Self-Reliance, recently wrote (https://www.theatlantic.com/ideas/archive/2024/12/food-deserts-robinson-patman/680765/) in The Atlantic, Walmart is well known for squeezing its suppliers, who have little choice but to comply (https://talkbusiness.net/2020/09/walmart-demands-all-suppliers-comply-with-98-on-time-in-full-shipment-rule/) for fear of losing their largest customer. Selling to Walmart at such low prices can force local suppliers to lay off workers and pay lower wages to those who remain. They also naturally try to make up for the shortfall by charging their other customers higher prices, setting off a vicious cycle that allows Walmart to entrench its dominance even further.
The most direct upshot of the new research is that Walmart isn’t the bargain for American communities that it appears to be. (When I reached out to Furman about the new research, he said he wasn’t sure what to make of it and suggested I talk with labor economists.) More broadly, the findings call into question the legal and conceptual shift that allowed Walmart and other behemoths to get so huge in the first place. In the late 1970s, antitrust regulators and courts adopted the so-called consumer-welfare standard, which held that the proper benchmark of whether a company had gotten too big or whether a merger would undermine competition was if it would raise consumer prices or reduce sellers’ output. In other words, the purpose of competition law was redefined as the most stuff possible, as cheaply as possible. But as the new Walmart research suggests, that formula does not always guarantee the maximum welfare for the American consumer.
https://www.theatlantic.com/ideas/archive/2024/12/walmart-prices-poverty-economy/681122/
Monopsony Power and Poverty: The Consequences of Walmart Supercenter Openings (https://docs.iza.org/dp17323.pdf)
https://static1.squarespace.com/static/5e0fdcef27e0945c43fab131/t/658e09c4c7f8563efb2a60fe/1703807458668/JustinCWiltshire_JMP.pdf
Once Walmart has become the major employer in town, it ends up with what economists call “monopsony power” over workers. Just as monopoly describes a company that can afford to charge exorbitant prices because it lacks any real competition, monopsony describes a company that can afford to pay low wages because workers have so few alternatives. This helps explain why Walmart has consistently paid (https://laborcenter.berkeley.edu/a-downward-push-the-impact-of-wal-mart-stores-on-retail-wages-and-benefits/#:~:text=The%20results%20still%20found%20a,large%2 0grocers%20(17.5%20percent).) lower wages than its competitors, such as Target and Costco, as well as regional grocers such as Safeway. “So much about Walmart contradicts the perfectly competitive market model we teach in Econ 101,” Wiltshire told me. “It’s hard to think of a clearer example of an employer using its power over workers to suppress wages.”
Walmart’s size also gives it power over the producers who supply it with goods. As Stacy Mitchell, a co–executive director of the Institute for Local Self-Reliance, recently wrote (https://www.theatlantic.com/ideas/archive/2024/12/food-deserts-robinson-patman/680765/) in The Atlantic, Walmart is well known for squeezing its suppliers, who have little choice but to comply (https://talkbusiness.net/2020/09/walmart-demands-all-suppliers-comply-with-98-on-time-in-full-shipment-rule/) for fear of losing their largest customer. Selling to Walmart at such low prices can force local suppliers to lay off workers and pay lower wages to those who remain. They also naturally try to make up for the shortfall by charging their other customers higher prices, setting off a vicious cycle that allows Walmart to entrench its dominance even further.
The most direct upshot of the new research is that Walmart isn’t the bargain for American communities that it appears to be. (When I reached out to Furman about the new research, he said he wasn’t sure what to make of it and suggested I talk with labor economists.) More broadly, the findings call into question the legal and conceptual shift that allowed Walmart and other behemoths to get so huge in the first place. In the late 1970s, antitrust regulators and courts adopted the so-called consumer-welfare standard, which held that the proper benchmark of whether a company had gotten too big or whether a merger would undermine competition was if it would raise consumer prices or reduce sellers’ output. In other words, the purpose of competition law was redefined as the most stuff possible, as cheaply as possible. But as the new Walmart research suggests, that formula does not always guarantee the maximum welfare for the American consumer.
https://www.theatlantic.com/ideas/archive/2024/12/walmart-prices-poverty-economy/681122/
Monopsony Power and Poverty: The Consequences of Walmart Supercenter Openings (https://docs.iza.org/dp17323.pdf)
https://static1.squarespace.com/static/5e0fdcef27e0945c43fab131/t/658e09c4c7f8563efb2a60fe/1703807458668/JustinCWiltshire_JMP.pdf