Wal-Mart Hinders Poverty Reduction, Study Finds

Date: 29 Oct 2004 | posted in: Retail | 0 Facebooktwitterredditmail

Counties that gained Wal-Mart stores during the 1990s fared worse in terms of family poverty rates than those that did not, according to a new study by researchers at Penn State’s Center for Economic and Community Development.

Wal-Mart often characterizes its stores as beneficial to the working poor. As a company spokesperson recently said, “We are the store of countless people who live paycheck to paycheck, wanting and needing decent products at decent prices.”

But after analyzing a decade’s worth of data, researchers Stephan J. Goetz and Hema Swaminathan of Penn State University, conclude that the presence of a Wal-Mart store actually hinders a community’s ability to move families out of poverty.

After controlling for other factors that influence poverty rates, the researchers found that those U.S. counties in which new Wal-Mart stores were built between 1987 and 1998 experienced a significantly smaller reduction in their poverty rates than those counties that did not add new Wal-Mart stores.

Overall, the portion of families living in poverty nationwide fell from 13.1 to 10.7 percent between 1989 and 1999.

Counties that gained one Wal-Mart store showed an 8 percent smaller reduction in the poverty rate compared to the national average, while those that gained two Wal-Mart stores experienced a 16 percent smaller reduction in poverty.

The researchers offer several explanations for their findings. One is that the jobs created by Wal-Mart may pay less and offer fewer benefits than those lost as local stores are forced out of business following the chain’s arrival. The demise of local retailers can also cause jobs to disappear in well-paying support sectors, such as accounting, wholesaling and transportation.

“More subtle factors may also come into play,” the researchers contend. “By destroying the local class of entrepreneurs, the Wal-Mart chain also destroys local leadership capacity.” This reduction in local leadership capacity represents a loss of social capital, which diminishes a community’s ability to tackle complex problems, including poverty, as well as its ability to generate high-quality economic development.

The study also notes that higher poverty rates translate into higher costs for taxpayer-funded public assistance programs.


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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.