Walmart Supercenters and Monopsony Power: How a Large, Low-Wage Employer Impacts Local Labor Markets

This paper considers the extent and impact of monopsony power exercised by Walmart Supercenters. I focus on Walmart as it has long been the largest private-sector employer in the U.S., and as it pays very low wages. Previous research into the firm’s labor market impact has yielded incongruous results, with little consensus on how to address identification concerns regarding endogeneity of store entry. A more recent literature has also demonstrated that widely-used estimators are often subject to numerous sources of bias when units are treated at different times. I address these identification concerns by adopting a stacked-in-event-time synthetic control approach to estimate average county-level labor market effects of the Walmart Supercenter roll-out across the U.S. Crucially, I construct the pools of synthetic control donor counties from novel observations of counties where Walmart tried to open a Supercenter but was blocked by local efforts. I find Supercenter entry caused significant reductions in local aggregate employment and earnings. Retail employment concentration grew, as retail employment initially jumped up before reverting to pre-entry levels. In counties with a Supercenter, subsequent exogenous minimum wage increases led to significant growth in aggregate and retail employment. These results run counter to predictions for competitive labor markets, and indicateWalmart Supercenters gradually accumulated and exercised monopsony power in their local markets for labor, with negative consequences for workers.