The Walmart Effect: Labor Market Implications in Rural and Urban Counties

Abstract

The entrance of a Walmart causes a change in full-time and part-time jobs in both urban and rural labor markets. This article analyzes county-level labor market changes of urban and rural labor markets before and after the entrance of a Walmart. I use Beale codes to categorize the counties that experienced their first Walmart entrance after 1990. Although the magnitude of the change appears to be larger in urban counties, I conclude that Walmart entry induces a change in the mix of full-time and part-time jobs in the labor market. We observe increasing employment and downward pressure on wages as total retail payrolls remain constant three years after a Walmart entrance. The increase in employment for both urban and rural counties is greater than 13 percent three years after entry while wages and payroll fluctuate, but settle back to pre-entrance levels. Roughly half the increase in employment represents Walmart replacing existing jobs in the market. This increase could be a result of Walmart attracting employees from existing firms; considering Walmart tends to offer more part-time labor per establishment, the prevailing mix of full-time and part-time labor could change. Although Walmart tends to add jobs within local labor markets, the change in the mix of full-time and part-time labor may result in an underemployed labor force. This study is intended to further advance the understanding of Walmart’s local impact on wages and employment. Specifically, I explore if the effect is different between rural and urban counties. Considering the large discount retailer is the United States’ largest private employer with over 1.3 million associates (Walmart Stores, Incorporated 2014), it is important to understand the potential effects Walmart may have on wages. Many studies have analyzed the impact of Walmart on labor markets from employment and wages to entry and exit of firms. A number of these analyses have revealed significant impacts of Walmart on labor markets; however, few studies have distinguished between rural and urban counties. Using county classifications I categorized each U.S. county that saw its first Walmart enter between 1990 and 2012 into one of three separate classifications: urban, rural-adjacent, and rural-non-adjacent (adjacent simply noting whether or not the rural county is located near an urban county). I use these separate classifications to analyze the impact of Walmart entry across different types of labor markets. The results suggest that Walmart changes the mix of full-time versus part-time retail labor in each of these county classifications. While the results show increasing employment estimates, retail payrolls remain unchanged, suggesting that Walmart places downward pressure on retail wages after entering the labor market (payroll is a function of employment and wages; if employment increases while payroll stays the same, one explanation is that wages are decreasing). While the results show decreasing wages in urban counties that are statistically significant, the estimates for rural counties are not—although estimates for rural counties are negative, and close to generally accepted significance levels. The results for employment are consistent with empirical research that suggests Walmart increases retail employment upon entry. And, although establishment estimates are not a focal point of this analysis, I find that an average of eight retail establishments are added in urban counties with five of them remaining after three years. Rural-adjacent and rural-non-adjacent counties do not experience this jump in establishments that sustains after entry. This article is written with a common format to present the analysis: first, a literature review covers existing research; I then delve into the analytical framework used in analyzing the results. Next, I outline the data used in analyzing the Walmart effect followed by the methods section that highlights the equations used in estimation. Finally, I conclude with two sections that outline the results and provide a discussion that puts them in context.