Krugman Reveals Hole in Big Box PR Pitch

Big Box Balderdash
By Paul Krugman
New York Times

In Paul Krugman's latest column, he takes aim at one of my biggest pet peeves, Walmart, and lays bare the holes in its latest PR response to the "Where Would Jesus Shop?" campaign of its critics:

"I think I've just seen the worst economic argument of 2005. Given what the Bush administration tried to put over on us during its unsuccessful sales pitch for Social Security privatization, that's saying a lot....

A union-supported group, Wake Up Wal-Mart, has released a TV ad accusing Wal-Mart of violating religious values, backed by a letter from religious leaders attacking the retail giant for paying low wages and offering poor benefits. The letter declares that 'Jesus would not embrace Wal-Mart's values of greed and profits at any cost....'

...[I]nstead of resting its case on [...] honest or at least defensible answers to criticism, Wal-Mart has decided to insult our intelligence by claiming to be, of all things, an engine of job creation. Judging from its press release in response to the religious values campaign, the assertion that Wal-Mart "creates 100,000 jobs a year" is now the core of the company's public relations strategy.

It's true, of course, that the company is getting bigger every year. But adding 100,000 people to Wal-Mart's work force doesn't mean adding 100,000 jobs to the economy. On the contrary, there's every reason to believe that as Wal-Mart expands, it destroys at least as many jobs as it creates, and drives down workers' wages in the process.

Think about what happens when Wal-Mart opens a store in a previously untouched city or county. The new store takes sales away from stores that are already in the area; these stores lay off workers or even go out of business. Because Wal-Mart's big-box stores employ fewer workers per dollar of sales than the smaller stores they replace, overall retail employment surely goes down, not up, when Wal-Mart comes to town. And if the jobs lost come from employers who pay more generously than Wal-Mart does, overall wages will fall when Wal-Mart moves in.

This isn't just speculation on my part. A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, "The Effects of Wal-Mart on Local Labor Markets," uses sophisticated statistical analysis to estimate the effects on jobs and wages as Wal-Mart spread out from its original center in Arkansas.

The authors find that retail employment did, indeed, fall when Wal-Mart arrived in a new county. It's not clear in their data whether overall employment in a county rose or fell when a Wal-Mart store opened. But it's clear that average wages fell: 'residents of local labor markets,' the study reports, 'earn less following the opening of Wal-Mart stores.'

So Wal-Mart has chosen to defend itself with a really poor argument. If that's the best the company can come up with, it's going to keep losing the public relations war with its critics. Maybe it should consider an alternative strategy, such as paying higher wages."

PHOTO: Paul Krugman (Fred R. Conrad/The New York Times)