Is Walmart Good for the Economy and Bad for Workers - Essay Example

Introduction Walmart represents a corporation that is both locally and globally conspicuous. It represents the largest private employer in the United States with a reported employee count of 1.4 million. It is a corporation familiar to most Americans as its stores offer almost everything that one could require at discount prices. The company accounts for an approximated eighth of china’s exports to the US. Walmart grew as a small company based in Arkansas town to its present status (Jacques et al 512). Walmart stores are popular in the US through their provision of low prices and variety in products that they sell. Walmart’s dominant share of retail sales in the US and its commitment on minimizing its costs have led to increased national productivity and lowered the rate of inflation. However, this statistic has also led to critics asking on how such critical economic indicators get determined. Walmart’s policy to regulate its operational costs and maintain fairly low prices has witnessed the company offer its employee’s relatively low wages and provide minimal benefits. The company gets publicized as not providing its employees with health insurance (Boarnet et al 439). The company has also attracted criticism for its contractual obligations with international manufacturing firms that can get described as ‘sweatshops’. The company also gets criticized for making workers lose their jobs at competing firms. Walmart also gets reported as a destroyer of local business and thus assist in disintegration of local communities and reducing consumer choices in these areas. The expansion and creation of Walmart super centers also gets reported to harm the environment by creating a generation of problems. This paper aims at analyzing the impact of Walmart’s growth and size on the economy and workers. Despite its insistence on portraying a positive public image, can the growth of Walmart become considered as an American success story? Or does its growth impact negatively on the economy and workers in similar industries as the company. The paper will pay specific attention to the economic effects of Walmart including how it affects local labor markets, local competitors, and suppliers. The paper will go further to evaluate and provide a conclusion on whether Walmart is beneficial for the economy and bad for workers or if it is bad for both. Rise of Walmart Currently, Walmart does not simply get stated as the largest world retailer, over the last several years, the company has popped in and out of the top spot of the Fortune 500 lists. This implies that the company has got to record greater revenues than any other corporation in the US. The company has grown from a regional chain based in Arkansas to expand into Oklahoma, Missouri, and finally the nation-conquering phenomenon that it is today. Founded in 1945 by Sam Walton, the company has proceeded to expand its brand beyond the US borders into countries such as Mexico, UK, Germany, Brazil, Japan, Korea, China, and Canada (Boarnet et al 435). The company’s growth got based around the marketing principles of customer satisfaction and low pricing that Sam Walton practiced and insisted on when starting the retail store. The company’s growth can get traced to its pioneering and innovative business model that is characterized by aggressive cost-cutting and a sophisticated supply chain management. Presently, the company has a reported 8,500 stores across the globe and it gets approximated that over 200million customers get to visit the stores weekly (Mattera). In the US alone, the company receives over 100 million customers weekly. Compared to America’s second largest retailer Costco, Walmart averages 5 times its sales. The company is currently the largest private employer in the US with over 1.4 million people working for the corporation in the US as of 2013. This makes the corporation the second largest overall employer in the US, only falling behind to the federal government. The company continues to make mammoth sales with over $466.1 billion of products sold as at 2013 (UFCW). The influence of Walmart around the US is legendary in a manner represented by the location of the company’s stores across the country. It is estimated that 96% of Americans live within a 20 mile radius of a Walmart store (UFCW). The company changed its advertising slogan from ‘always low prices, Always’ to ‘save money, live better’ in 2007. Economic effects of Walmart Walmart sells a wide variety of products compared to other competing retail outlets. The company also hires a large workforce. It also generates substantial sales tax revenue and property tax to local communities. However, the company is no stranger to hostile sentiments, and its plans to build new stores in particular communities are synonymous with considerable protests. Much of the protests on the continued expansion of Walmart are often pinpointed to the perceived disjointing effects that Walmart has on other local stores (Jacques et al 531). The economic impact of Walmart can become analyzed from a multitude of points. This section will look at Walmart’s effects on consumers, the government’s fiscal policies, employment, and other retail establishments. Walmart’s effect on the labor market The continued expansion of Walmart stress across the US has had a profound effect on employment. As at 2013, the company is reported to provide employment to over 1.4 million people ranking second only to the federal government in relation to employment provision. A typical Walmart store employs between 150-350 people, while its supercenters offer employment for up to 500 people (Mattera). Many of the jobs offered by its stores are part-time. When assessing Walmart’s employment creation, it is vital to factor in the net job creation that the retail chain brings to the fore. Despite providing a large number of employments, the presence of Walmart chains in local communities results in job losses too (Boarnet et al 436). The firm causes other competing retail businesses to close down or down-size, which results in the loss of jobs among workers in the smaller firms. Therefore, the net effect that Walmart has on jobs is positive, but it is quite small. Walmart offers its employees relatively low wages. As keeping tradition with its founding principles of cutting operational costs, the company has continually paid low wages to its employees compared to other retail stores. The company’s low wages is partly due to the minimum work time it offers its employees. For example, a ‘full time’ employee at Walmart works a minimum of 28 hours per week (Jacques et al 525). These short working weeks have resulted in almost half of Walmart’s workforce to qualify for food stamps and even cash income assistance in states that have higher social insurance benefits. This is totally unfair on employees based on the fact that Walmart makes high revenues and large profits after tax. Walmart is infamous for its anti-union labor practices. As a rule in the US, the retail sector which encompasses Walmart is less unionized when compared to other sectors in the country. However, Walmart pushes the retail sector’s non unionization to the extreme. Walmart has none of its stores in North America that is unionized. The store’s antiunion stance has resulted in a change of practices across the retail sector in the US. Employers within the retail sectors have called for a reduction in starting wages in the face of competition from Walmart’s expansion. This means that part of the retail sector that is unionized face the possibility of reducing wages to its employees in the face of Walmart’s entry or threat of entry. Walmart has also faced continued scrutiny in regards to its employee benefit packages (Vedder & Jacobs). This has resulted in the improvement of its benefits packages in the recent years. The company reports that 47% of its employees get covered by its health plans (West 2). However, some of the company’s health plans feature very low monthly premiums, as low as $11 a month. Further, 10% of the company’s employees get reported to have no insurance at all (West 4). The company has also faced legal suits by former and current employees who have accused the firm of various unethical and illegal practices. Some employees have reported to being requires to work off the clock or cancel their meal breaks. At least 30 states have reported of employees who have sued Walmart on the basis of being required to work off the clock (Jacques et al 525). Such reports indicate how managers have deleted worked hours from time cards. It also gets reported that as part of its cost-cutting principles, some workers have stated of the times that they have been locked within the stores to clean and do other sorts of work off their payroll. Some cases have proceeded to trial while other have been settled (Jacques et al 525). Impact of Walmart on other retail establishments The ability of Walmart to sell its products at a lower price implies that it provides a distinct threat to other close by retail establishments (Vedder & Jacobs). Walmart further toughens an already competitive environment for these businesses. Walmart offers a direct threat to medium sized and well established retail outlets through its pricing strategy and its size. Some retail outlets become faced with the inevitability of closing down or down-sizing as a result of a decline in their customer base or reduced profit margins due to the presence of Walmart in their areas of trade. A reduction in customer base or profit margins ensures that such businesses can no longer remain viable in the presence of the huge competition offered by Walmart. The presence or establishment of a Walmart store in local communities has had a profound effect on businesses that tend to sell hardware, apparel, shoes, fabric, jewelry, paint and glass, building supplies as well as groceries (Scott). Walmart has also offered a direct threat to establishments offering certain kinds of services such a car repairs and optical services, leaving them vulnerable to closer or down-sizing. The presence of Walmart in an area also tends to have a positive effect on certain kinds of businesses. Businesses that tend to provide goods or services not provided by Walmart such as eating establishments and home furnishing stores appear to receive a boost in sales based on their proximity to Walmart stores as a result of having a greater incidence of drive-by or walk in shoppers from Walmart stores (Scott). Despite of this positive, the general trend is that the presence of a Walmart store in a given region tends to have a negative impact on local retail businesses. Effect on consumers Walmart’s sophisticated supply chain allows the company to provide its customers with goods that are priced lowly when compared to what its competing retailer firms can offer (Scott). It is also noted that Walmart also tends to offer a substantial variety of products to its customers compared to other retailing firms, particularly in rural areas. this can be attributed to the firms ‘supercenters’ which sell anything from groceries to clothing to optical services to hardware. This enhances consumer choice. Through its provision of a wide array of products at lower prices in a single location, Walmart provides consumers with a direct economic benefit. This economic benefit to consumers is engrained in the fact that these consumers might have had to travel long distances to access a greater range of goods and or services at lower prices. this goes a long way in satisfying consumer wants and needs. Impact on fiscal policy The presence of a Walmart store in a given county assists to generate substantial property tax and sales tax revenues for the given county. This assists in the fiscal well-being of the given county or town where Walmart stores get located. By providing a superior range of products, the presence of a Walmart store is likely to result in increased sales and it could be right to postulate that an increase in sales revenue tax within the county or town is likely. When Walmart stores get built on previously underdeveloped grounds, there completion results to a large incremental increase in the property taxes within their location. However, in the event that the stores get built on locations that had other properties for example a downturn shopping district, then there is also the likely effect that property taxes may decline. This is so because; the presence of Walmart might scare away already functional and potential businesses that are turned away at the potential of such humongous competition from the firm. It is also vital to note that Walmart pays billions of taxes every year through their multiple stores located across the US. Walmart reportedly pays sales taxes at almost the entire 45 of the 50 states of the American union (Vedder & Jacobs). With such statistics, it can be rightly assumed that Walmart pays much more taxes compared to its after-tax profits. Considering that the firm is also the country’s largest retail outlet with the largest annual revenue score, it is right to postulate that the company pays the most taxes in comparison to other firms in the country. The company thus provides a large tax sum to the county governments ensuring their fiscal well-being. Walmart also gets singled out as a burden on taxpayers (Vedder & Jacobs). This is in relation to the subsidies that the company receives when it moves into newer communities that have lured it in. further criticism on the company’s fiscal policy is singled out on its wage and benefit practices that potentially affect its cost advantage. Critics argue that Walmart’s imposes a large burden on taxpayers even when compared to other retailers based on the company’s measly wage it offers to its employees (Vedder & Jacobs). Walmart’s success is founded on its insistence in cost-cutting procedures that sees it hold low levels of employee compensation. A study conducted revealed that workers at Walmart make 31% less compared to the average earnings of employees at other large retail company’s and thus require 39% more public assistance in the form of welfare and healthcare benefits (Mattera 2). Critics of Walmart’s continued expansion cite that each Walmart store costs nearly half a million dollars in US health-care and welfare benefits. Effect on suppliers Walmart has grown into a large corporation that ultimately controls prices for everyone who sells to it or competing against it. The company’s purchasing power has affected its relationships with suppliers. The major criticism of the company’s supply chain lies in its importation of cheaply manufactured products from foreign low-cost producers. Its suppliers are disproportionately foreign and have continually produced private-labeled goods. As of 2004, the company imported goods worth $18billion from China alone and this accounted for 15.4% of the US imports of consumer goods from China that respective year. The ability to source globally has further impacted on local suppliers who undergo higher production costs, and has continued to increase Walmart’s competitive advantage over small-medium retailers in the country. The continued ability to import low-cost manufactured goods also hurts US economy in relation to the opportunity cost foregone had Walmart solely relied on the locally based manufacturers within the country. Conclusion Walmart’s case provides for an interesting economic debate. The debate over Walmart’s expansion across the United States and the perceived potential benefits or costs has been covered with false dichotomies. This has evoked deep heated arguments between both supporters and proponents of Walmart’s continued expansion. As with any other large corporation that makes mammoth profits and generates huge revenues, Walmart impacts a multitude of effects on the economy and its workers. The impact of Walmart on the economy and workers provides both positive and negative impacts. Walmart does a lot right. To begin with, the company provides economic benefits to consumers through its provision of low prices and a wide array of products. The company’s ability to create employment opportunities can also not be taken for granted as it is home to the second largest workforce in the country after the federal government. The company also ensures the fiscal well-being of county governments through its submission of tax in the form of sales and property taxes. This goes a long way in ensuring that local governments provide social amenities for their residents. The expansion of Walmart has also impacted negatively on both workers and the economy. Local economies have lost small businesses in the face of competition provided by the entry of Walmart. As a result of small businesses shutting down, jobs have also become lost as these businesses run down or down-size. These cause workers to lose sources of income. The presence of Walmart in the retail sector also results in lowered wages for both its workers and those of its competitors. The continued growth of Walmart has also seen the company rely heavily on global sourcing for its products providing it with a competitive advantage that leads it to dictate prices for suppliers and its competitors. This advantage forces local manufacturers to mark-down on their prospective profits and these impacts negatively on the country as a result of lowered tax collections. To determine whether Walmart is good for the economy and bad for workers or bad for both depends on an individual’s view on what the varied impacts of Walmart are relevant to one. The choice lies in what one perceives Walmart’s greatest impact in relation to labor market impacts or the economy. There is need to choose a middle ground that sees both the economy and workers as the winners of Walmart’s continued growth and expansion. This calls for the policy makers to institute a win-win situation for Walmart, the economy, and workers. Works Cited Marlon G Boarnet, Randall Crane, Daniel G Chatman, Michael Manville. "Emerging Plannng challenges in retail." Journal of the American planning association (2005): 433-449. Mattera, Philip. "Shifting the Burden for Vital Public Services: Walmart’s Tax Avoidance Schemes." Good Jobs First (2011): 1-14. —. Wal-Mart Stores. 1 December 2013. 18 April 2014 . PETER JACQUES, REBECCA THOMAS, DANIEL FOSTER, JENNIFER MCCANN, MATTHEW TUNNO. "Wal-Mart or World-Mart? A Teaching Case Study." Review of Radical Political Economics (2003): 513-533. Richard K. Vedder, Ken Jacobs. Is Walmart Good or Bad for America? A Debate . 8 March 2007. 18 April 2014 . Scott, Robert E. The Wal-Mart effect. 25 June 2007. 18 April 2014 . West, David L. "Wal-Mart and Health Care Condition: Critical." Center for a Changing Workforce (2006): 1-18. Workers, United Food & Commercial. Shameless: How Wal-Mart Bullies Its Way Into Communities Across America. 18 April 2014. 18 April 2014 . Read More