Walmart – do they help the poor?

The December edition of ‘The Atlantic’ magazine had a piece on Walmart suggesting that it actually makes people poorer even with their famous lower prices. For many years Walmart has marketed itself as the company that saves lower income groups thousands of dollar every year. Although the cost saving for consumers is easy to calculate it doesn’t capture other variables like the change in shopping habits, workers switching jobs, competitors shifting their strategies and suppliers altering their output.

One study compared two demographically similar groups of people, one of which was exposed to the “treatment” of a new Walmart store opening, and the other was not. The study found that within 10 years of a Walmart opening, the average household in that community experienced a 6% decline in yearly income (equivalent to about $5,000 in 2024 dollars) compared to households that did not have a Walmart nearby. Low-income, young, and less-educated workers suffered the biggest losses but the study didn’t consider that Walmart might choose those areas as they are already predisposed to poverty.

Another study compared where Walmart was successful in opening a store in contrast to where they failed due to local resistance. This study also found that workers in counties where a Walmart opened experienced a greater decline in earnings than they made up for with cost savings. The losses were not just limited to retail workers but affected basically every sector, from manufacturing to agriculture.

Why does Walmart have a negative effect?

Low wages – Walmart’s size gives it “monopsony power” over workers, meaning it can pay low wages because workers have few other options. This allows Walmart to pay lower wages than its competitors. See graph

Impact on the supply chain – Walmart is known for squeezing its suppliers, who have little choice but to comply for fear of losing their largest customer. This can lead to local suppliers laying off workers and paying lower wages. They also try to make up for their losses by charging other customers higher prices, further entrenching Walmart’s dominance

Closing local businesses – when Walmart opens, it undercuts local businesses and forces them to close – monopoly power see mindmap below. As a result, local farmers, bakers, and manufacturers that once sold their goods to those local retailers are replaced by Walmart’s national and international suppliers.

Consumer well-being – focusing on keeping consumer prices low, may not be the best measure of overall well-being and may come at the expense of income, jobs, and business development.

“So much about Walmart contradicts the perfectly competitive market model we teach in Econ 101, it’s hard to think of a clearer example of an employer using its power over workers to suppress wages.” Justin Wiltshire – University of Victoria, Canada

The Biden administration has focused on reviving antitrust and taking into account the effect of mergers on workers, not just consumers. However, the incoming Trump administration’s stance on corporate consolidation is not clear.

Sources:

The Atlantic – The Walmart Effect – December 2024

Walmart Supercenters and Monopsony Power: How a Large, Low-Wage Employer Impacts Local Labor Markets. Justin Wiltshire University of Victoria, Canada

For more on the Labour Market view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.