Report: Wal-Mart Will Create Jobs

A study says the net effect on Southland employment is positive. Some economists question the findings.

By Nancy Cleeland and Abigail Goldman
LA Times Staff Writers

January 28, 2004

Wal-Mart Stores Inc.'s entry into the Southern California grocery business will produce a net increase in jobs, as benefits of its lower prices offset the downside of its lower wages, according to a Los Angeles County Economic Development Corp. report funded by the discount retailer.

The report's release Tuesday was criticized by some economists and community leaders. The study comes just weeks before Los Angeles City Council members are expected to vote on an ordinance that would ban Wal-Mart Supercenters from much of the city.

Previous studies by the Orange County Business Council and the San Diego Taxpayers Assn. found an overall negative economic effect from Supercenters, which sell a full line of groceries along with general merchandise. Those findings were based primarily on the lower wages and benefits paid by Wal-Mart compared with unionized supermarkets.

Gregory Freeman, director of policy consulting for the LAEDC, said those studies failed to account for consumer savings on groceries, which he said cost about 15% less at Wal-Mart.

After Wal-Mart is firmly established in California, those savings would amount to $524 a year for the average household, he said, adding up to annual savings of $668 million in the city of Los Angeles and $1.8 billion in Los Angeles County. If consumers spent all that money, it could create 17,300 jobs, Freeman said. In contrast, he said, only 2,500 jobs would be lost because of lower wages. He said job losses at competitors would be negligible because of Wal-Mart's slow expansion and the region's growing population.

The jobs estimate was based on economic modeling used by the U.S. Commerce Department, Freeman said, adding that he could not predict what kinds of jobs would be lost or gained.

Some economists questioned the findings of the LAEDC, a nonprofit organization funded by the business community.

"Among the working-poor families of Los Angeles, what would be gained from a small amount saved on household food costs if wages are declining and other costs, such as healthcare, keep rising? It seems like an empty proposition," said Patrick Burns, a senior researcher at Economic Roundtable in Los Angeles, a nonprofit organization that studies jobs and the local economy.

"In our research, we've found that L.A. County already suffers from an overabundance of low-wage jobs with few, if any, benefits, not to mention a disproportionate share of the nation's 'under the table' jobs," said Burns, who read the LAEDC study. "This is the wrong direction for the L.A. economy."

Los Angeles City Councilman Eric Garcetti, who is cosponsoring the council's ordinance, said the report "goes against what every academic study has shown: that there is a net job loss when Supercenters locate in areas like Los Angeles…. This is about making sure we don't have a Pyrrhic victory of low prices but no good jobs. We want Wal-Mart to be a force for both."

Bentonville, Ark.-based Wal-Mart paid $65,000 for the study. LAEDC economist Nancy Sidhu said the company was heavily involved in editing the report's summary. "We wrote it, they reviewed it, we wrote it again, and they reviewed it again. We took some suggestions and rejected others."

Freeman said the LAEDC took "extraordinary pains to put in qualifiers and caveats" because it knew the findings would be controversial. "Most of the previous studies say it's either good or bad," he said. "The whole point of this study is to say, 'It depends.' This report is about looking at the whole picture."

Wal-Mart spokeswoman Mona Williams said the company was pleased with the findings. "This is a great day for California consumers," she said. "Wal-Mart will bring enormous benefits to the region."

The company plans to build 40 Supercenters in the state over the next two years. At least six California cities have approved the stores, and the first is set to open in La Quinta in March. Several communities have adopted zoning rules that would prohibit them, and Wal-Mart has responded in some cases with lawsuits and ballot initiatives. Wal-Mart will be on the ballot in Inglewood this spring.