How Lower Retail Prices Depress Buying Power

05.19.08 | Work | 1 Comment | by Fred Siegmund

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Retail trade has an average monthly employment of nearly 15.5 million. While it is not the biggest part of America's economy (government is bigger and health care is almost as big and gaining fast), it is the percentage of America's jobs that makes retail different from other sectors.

In 2007, retail trade had 11¼% of wage and salaried jobs in the United States. It was also 11¼% in 1975. Back in the late 1940s, it was 10¼ to 10½%, but the percentage slowly crept up to 11% in the 1970s and briefly reached 12% in the late 1980s before beginning an 18-year decline to 11¼% today.

Using computer technology in trade, especially for barcodes and inventory management, increases labor productivity. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing.

Higher productivity means potential savings as lower costs and competition pressures retailers to lower prices, but the savings limits job growth and decreases the retail share of jobs.

Employment data by state or metropolitan area tells the same story. The percent of retail jobs by state cluster tightly around the 11.25% average and the percent variation above and below that total is usually less than a percent.

Because retail jobs remain at roughly the same percentage of total employment, the only way to have more retailing jobs is to have a bigger population to serve. For anyone in local government or a chamber of commerce who wants to boast local employment by luring in a big national retailer, the plan will not work.

Before much time goes by, the new retailer displaces existing retailers and jobs fall back to 11 or 12 percent.

The matter of displacement is controversial because the retailer Wal-Mart has the reputation of charging low prices but paying the lowest wages in the retailing industry. When a large retailer such as Wal-Mart enters a new market in a new location, there will be potential savings for consumers from lower prices if Wal-Mart really has lower prices.

However, if Wal-Mart really does pay lower wages, then lower wages without new jobs depresses local buying power, which will depress all of the local economy.

While it may appear that lower prices are savings for many, lower paying jobs have secondary effects that spread throughout the area. Savings are more complicated than lower prices. Savings over time depends on prices and wages.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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