Wal-Mart Study Doubts Store’s Claims

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The New York Sun

A labor-backed think tank is accusing Wal-Mart of grossly exaggerating the benefit it delivers to the American economy.

A paper released yesterday by the Washington-based Economic Policy Institute disputed the findings of a Wal-Mart-commissioned study, which concluded that the company’s tight-fisted business model delivered $263 billion in savings to American consumers through 2004.

“The big problem with their study is they’re using far too broad-spanned a net to find what they’re looking for,” an author of the Economic Policy Institute paper, Joshua Blevins, told The New York Sun.

Mr. Blevins said the Wal-Mart-backed study, released in November and conducted by a Massachusetts-based economic analysis firm, Global Insight, erred by repeatedly relying on the Consumer Price Index, about 60% of which consists of services not provided by Wal-Mart. The Global Insight study attributed to Wal-Mart a 3.1% decrease in the overall CPI and a 9.1% decrease in food prices since 1985.

The Economic Policy Institute paper calls these numbers “indefensibly large” and claims internal inconsistencies in the findings. “Correctly measured, Wal-Mart’s impact on four CPI indices….was negligible throughout our panel observations,” wrote Mr. Blevins, a colleague at the same think tank, Jared Bernstein, and an economist at the University of California at Berkeley, Arindajit Dube.

They also said Global Insight relied too greatly on a model studying overall price changes in metropolitan areas with Wal-Marts. Mr. Blevins said the component of the Consumer Price Index that showed the most “robust” decreases as Wal-Mart expanded was apartment rent, an economic indicator with no obvious connection to the big box retailer.

A spokesman for Wal-Mart, Kevin Thornton, attacked the Economic Policy Institute as a tool of a union-funded campaign to discredit the company. “This organization’s board of directors is filled with union leaders and is funded by big labor,” Mr.Thornton said.

A spokesman for Global Insight, Jim Dorsey, said the firm’s work was reviewed before publication by a former Federal Reserve board member, and scholars at the Brookings Institutions and the American Enterprise Institute. “Our study produces estimates of Wal-Mart’s impact on prices and consumer savings that make common sense and are consistent with the findings of other rigorous, peer-reviewed studies on the subject,” Mr. Dorsey said.

Mr. Dorsey said critics of the study have failed to grasp the knock-on effects of Wal-Mart’s lower prices on the cost of products and services not sold at the stores.

The critique of the Wal-Mart study also challenges Wal-Mart’s claims that significant increases in wages or health care costs assumed by the company could erase the firm’s profitability.Wal-Mart had a 3.6% profit margin in 2005, but the critics said that if the company accepted the same profits a competitor, Costco, earned in 2005, or about 2%, Wal-Mart could deliver a 13% pay hike to front-line workers.

Mr. Thornton said claims that Wal-Mart wages and benefits are substandard are belied by the surplus of applicants for jobs at the company. He noted that earlier this week 8,000 people applied for 350 jobs at a soon-to-open store in Kearny, N.J.

While the economists at the labor-backed think-tank seemed eager to prove that the costs savings Wal-Mart offers are slim, that assertion tends to undercut the claim that the company could raise wages without hurting its profits. Mr. Blevins acknowledged that tension in the findings. “It’s a problem for both sides of this debate. The other side wants to claim Wal-Mart’s price advantage is enormous, but, ‘Oh, no, we couldn’t afford wage increases. We’d collapse,'” Mr. Blevins said. “If they have a very tiny price advantage, then it means its mostly through paying workers less.”

The critique also faults a former Clinton White House aide and adviser to Senator Kerry’s presidential campaign, Jason Furman, for mistakenly asserting that Wal-Mart saves Americans $263 billion each year, or $2,329 per household. While that assertion by Mr. Furman has appeared in various newspapers including this one, the Global Insight study’s claim applied to a 20-year period, not a single year.


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