Running head: SOCIOECONOMIC EFFECTS OF WAL-MART

Socioeconomic Effects of Wal-Mart University of Phoenix MGT 521 December 04, 2011

Socioeconomic Effects of Wal-Mart Since Wal-Marts beginnings in 1962, it has become the largest retailer in the United States. In the current economic climate of the United States, many smaller retailers have met demise while Wal-Mart continues to grow and expand (Agnotti, Paul, Gray & Williams, 2010). There are advantages and disadvantages of having a large retailer such as Wal-Mart in local economies. Many factors occur having both positive and negative economic impacts due to WalMarts existence in the local economies. We will look in detail at the social and economic impacts of Wal-Mart and the effect of the impacts in areas where Wal-Mart has developed. Positive Social Impact of Wal-Mart When assessing the social impact of businesses such as a Wal-Mart, attention must be given to the social composition of the area in which the Wal-Mart is to be established. Social impacts will vary between affluent, middle class, and distressed areas and/or neighborhoods. In places where the mean population is considered affluent to upper to middle class, such as Coronado, CA, small businesses may be the norm. Businesses in these locales consist of predominately specialized establishments catering to a particular clientele, and local patrons are rather able and conditioned to shop at these establishments. Businesses in this type of environment also have a major influence on community politics and bureaucracy, and businesses such as Wal-Mart may not gain acceptance, given their potential to negatively impact established businesses. In lesser socioeconomic areas Wal-Mart could be a welcome institution, providing lower prices, jobs, increased economic opportunities, health and lifestyle benefits, and chances for local inhabitants to improve their social stature and well-being. A prominent argument focuses on Wal-Marts hindering the survival and establishment of small local Mom and Pop businesses,

however small businesses may benefit from residual business created by the presence of large chain establishments. Spillover business to smaller local businesses such as coffee houses, cafes and restaurants, and specialty shops may substantially augment the profitability of these businesses.

Negative Social Impact of Wal-Mart Positive Economic Impact of Wal-Mart According to Renkow (2005), the positive overall economic impacts are undeniable. The following table lists the general impacts: Type of Impact Direct Economic Indirect Economic Impacts Positives 1. Earnings of new Wal-Mart employees 2. Lower prices for consumers 1. Spillovers to some local businesses 2. Increased local retail activity associated with earnings of Wal-Mart employees 1. New jobs created by Wal-Mart (some of which will be taken by locals) 1. Increased sales tax revenues 2. Increased property tax revenues

Employment Fiscal

In addition to the general impacts, Wal-Mart, due to its size and cheaper prizes, is able to provide a bigger economy that fuels growth. In fact, Robert Solow, a Nobel laureate in economics, attributes Wal-Mart as a major contributing factor in the growth of the labor pool from 1995 to 2000. He said, By far the most important factor in that [growth] is Wal-Mart." (Ghemawa & Mark, 2006). Wal-Mart does not take a bigger fixed percentage of the local economy; it makes that economy bigger for everyone. Wal-Mart is an economic force

multiplier since it lets the individual consumer keep more of their money so he/she can spend it elsewhere. Lets assume that Wal-Mart saves ten percent on goods than its competitors. This ten percent savings is now spent elsewhere in the community. Negative Economic Impact of Wal-Mart There are some negative outcomes in the local economy due to a Wal-Marts existence. Most people would agree that the giant retail company drives their smaller competitors out of business, simply because they cannot keep up with Wal-Marts lower prices. According to Sobel and Deans scholarly peer reviewed in-depth analysis, in Iowa, Wal-Marts expansion has been responsible for widespread closings of mom and pop stores, including 555 grocery stores, 298 hardware stores, 293 building suppliers, 161 variety shops, 158 womens stores, and 116 pharmacies. (Sobel & Dean, 2008). In addition, it also causes unemployment due to the downsizing of smaller business or they just simply go out of business. When small businesses decide to cut their budget, employees tend to suffer first from wage decrease and eventually lead to termination of employment. Since other businesses are closed down, the sales tax revenue within a local community would decrease. Some people would also argue that a decline in sales tax revenue is linked to Wal-Mart. Instead of having a lot of stores compete against each other, which generates more revenue, the cheaper prices of the corporation decreases the local economys overall sales tax revenue. The end result is that they eliminate the competitions which are the small businesses in the area. (Sobel & Dean, 2008).

References Agnotti, T., Paul, B., Gray, T. & Williams, D. (2010). Wal-Mart's Economic Footprint: A Literature Review Prepared by Hunter College Center for Community Planning & Development and New York City Public Advocate Bill de Blasio. New York: Center for Community Planning and Development.
Ghemawat, P. Mark, K. (2006). The Real Walmart Effect. The Harvard Business Review. Retrieved from http://hbswk.hbs.edu/item/5474.html

Goetz, S., & Rupasingha, A. (2006). Wal-Mart and Social Capital. Retrieved from http://nercrd.psu.edu/bigboxes/walmartandsocialcapital2.pdf Renkow, M. (November/December 2005). Wal-Mart and the Local Economy. Retrieved from http://www.ag-econ.ncsu.edu/VIRTUAL_LIBRARY/ECONOMIST/novdec05/pdf Sobel, R. S., & Dean, A. (2008). Has Wal-Mart Buried Mom and Pop?: The Impact of WalMart on Self-Employment and Small Establishments in the United States. Economic Inquiry, 46(4), 676-695. doi:10.1111/j.1465-7295.2007.00091.x