Contributors
Gary M. Galles - Contributor

Mr. Galles is a professor of economics at Pepperdine University. [go to Galles index]

Wal-Mart and Proposition 72
A Bogus Assault...
[Gary M. Galles] 10/30/04

A last-ditch $3 million ad campaign for Proposition 72 features Wal-Mart as a health insurance miser. It even led Wal-Mart to contribute to the “no” campaign “to defend their honor.” However, unmentioned in the media coverage is that the research study cited is so biased that its conclusions are indefensible.

“Hidden Cost of Wal-Mart Jobs” was published by the UC Berkeley Labor Center in August. It purported to document that Wal-Mart imposed burdens on California taxpayers through their use of welfare and health care programs, which was used then as a “proof-text” by SuperCenter opponents. Now it is being recycled to promote Proposition 72 and take another shot at Wal-Mart.

Unfortunately, that study was questionable research. it was a misleading set of results engineered from biased assumptions (since manipulating one’s premises is the most effective, hidden way to get desired answers), produced by a biased source.

The UC Institute for Labor Employment, the Labor Center’s primary sponsor, is not so much a research organization as one that exists to support the union agenda. For instance, in a single newspaper story, it was described as “unabashedly pro-labor,” and “an institution that has been there for the labor movement,” which was heartily endorsed by the California Labor Federation. Created by Gray Davis in the “surplus” year of 2000, it was so obviously biased that Governor Schwarzenegger proposed zeroing out its $4 million budget, before union-backed lobbying restored it to $3.8 million.

The failings of the “research” whose conclusions are now being touted are numerous. However, consider some of the most egregious ones.

Its conclusions are, in fact, derived from misleading underlying estimates. For instance, despite the fact that Wal-Mart employees are far more likely to be retired, secondary workers or teenage members of a family, and to work part-time, it assumed they had the same demographic composition as for other employers, biasing wage and other comparisons. But not wanting insurance coverage because a retiree receives Medicare or a worker is already covered (the study erroneously assumes that workers not covered by Wal-Mart’s insurance are not covered by any employer-sponsored insurance) hardly indicts Wal-Mart for cruelty. In fact, such workers would be harmed by their portion of the cost of mandatory coverage that would duplicate what they already have.

The study’s sources are questionable. It relies heavily on newspaper articles, but only cites a single, old, refereed academic journal article. It also fails to show its methodology, referring readers to an earlier study by the same group. However, the earlier study does not, in fact, clearly reveal the methodology, either.

Perhaps the study’s least defensible assumptions, however, were economic. Based on the flimsiest of cited evidence, which in turn was ambiguous (e.g., looking at local effects in retailing alone rather than broader effects), it assumed that lower wages had no effect on employment. However, assuming away the law of demand hardly qualifies as economic research. Further, the study assumes that the savings people receive from Wal-Mart’s lower costs have no further economic effects on employment, incomes, tax revenues, etc., as if those savings won’t be spent for other goods and services directly (added consumption spending) or indirectly (savings funneled to investment spending), as well as making otherwise too-costly projects now worthwhile.

The UC Berkeley Labor Center study, as well as the anti-Wal-Mart/pro-Proposition 72 ads built on its conclusions, does not merit much respect. It appears to be little more that a mechanism to conclude what its supporters set out to find, by burying its misleading assumptions and approach deeply enough that no one would look carefully enough to discover them. The alleged results may swing the outcome of Proposition 72, since it depends on voters whose attention to such questions is very limited, but good policy is seldom based on deliberate distortions.

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copyright 2004 Gary M. Galles

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