From a small northwestern observatory…

Finance and economics generally focused on real estate

The WalMart Effect

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It’s a sleepy Saturday morning in the Pacific Northwest.  December 23.  Like so many Americans, I have some last minute shopping to do.  Like so many Americans, I’m dreading that, and looking around feverishly for an excuse to not do it.  Fortunately, I have a blog and a functioning computer.

Reading Reddit recently (and always looking for an excuse at alliteration) I happened upon an interesting map of the US showing the largest employer in each state.  I couldn’t help but notice that in a large number of states, WalMart was the largest single employer.  As someone who regularly travels the length and breadth of our great nation, I also couldn’t help but observe that many of the states where WalMart dominates employment are also at the lower end of the economic totem pole.  Aha!  I exclaimed, for I had suddenly stumbled on a distraction worthy of my Saturday morning.

Before I go any further, please let me stress that I have nothing against WalMart.  I’ve actually done a bit of work for them, in the long distant past (OK, maybe 15 years or so ago) on property disposal issues.  They have very tough standards for consultants, but they pay their bills (although, you earn the money!).  Indeed, I have very few bones to pick at all in this study, other than the obvious which is that political and civic leaders owe it to their states and communities to seek out exportive “basic employment” businesses.   Communities do not benefit by sending their money elsewhere (which is what they do when people shop at any retail establishment, as I will do later today).  They benefit when they send goods and services elsewhere in trade for money.  Note that “exportive” is a general term.  In Nevada, for example, the largest employer is MGM Resorts.  The customers are kind enough to haul large sums of money to Nevada from out-of-state and dump it in the middle of the street for the locals to scoop up by the bucketful.

My little study also does not account for states which have lots of exportive businesses, but no single entity which is dominant.  For example, Florida is a bit of an outlier, in that tourism is a big exportive business, yet WalMart is still the biggest single employer.  Go figure.  I would have guessed Disney.  In many states, the University system is the biggest employer, but recognize that Universities are huge exportive enterprises.  Money flows in from research grants, technology transfer, patent licenses, tuition from out-of-state and foreign students (the U.S. is still the preferred place in the world for an education), and alumni gifts, and all we send out are journal articles and educated individuals.  From a local perspective, higher education is the gift that keeps on giving.

Anyway, I downloaded the data.  There are 22 states in which WalMart (“WM”) is dominant, and 28 in which it is not.  I also went to the Census Bureau and grabbed the state-by-state median household income (“HHI”) stats.  I then ran three quick studies (and yes, it’s still morning).  First, a simple correlation shows that having WM as the state’s largest employer has a negative 51% correlation with HHI.  In other words, if your state has WM as its largest employer, your state is 51% likely to have lower-than-average HHI (yes, this is a simplistic way of looking at it, but bear with me).

I then ran a simple log-linear regression. (Since HHI is bounded at zero, the conditions for OLS don’t stand, so a log transform of HHI is needed.  It actually makes it a bit easier to interpret the data.  Plus, there are a few other reason, but I won’t bore you.)  The WalMart Effect, as I call it, is about 15.75%, with a very high (>99%) level of confidence.  In other words, if your state has WalMart as its largest employer, your state’s median household income is likely to be 15.75% below average.

Finally, I measured the actual numbers.  Of the 28 states which do NOT have Walmart as the largest employer, the average median household income was $62,116 in 2016.  If WalMart is the largest employer, that number was $52,290, for a difference of $9,818.  Thus, the Walmart effect….

Now, I’m going to go shopping.  I’ll eventually write this up in a little paper.  E-mail me and I’ll send it to you when and if I get around to it.

Written by johnkilpatrick

December 23, 2017 at 11:58 am

Posted in Economy, Finance

Tagged with ,

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