story by Michael Tilley and Kim Souza
mtilley@thecitywire.com
The economic impact of a more than 5.5% reduction in Wal-Mart corporate jobs in Northwest Arkansas could reduce annual economic activity in the area by almost $47 million a year, and result in the loss of around 391 non-Wal-Mart jobs.
The City Wire recently reported that Bentonville-based Wal-Mart Stores and its Sam’s Club division are in the process of cutting up to 1,000 corporate headquarter jobs by Nov. 1. Several sources familiar with the situation said the cuts would happen through layoffs and attrition, and may include up to 200 vice presidents.
Officials with Wal-Mart Stores have declined to confirm or deny the layoffs. This is the second local corporate layoff by the retail giant this year after about 50 positions were eliminated in February.
According to Wal-Mart, the company now employs around 18,000 in Northwest Arkansas tied to the corporate headquarter operation. A 1,000 person layoff is just over 5.5% of the total Wal-Mart corporate workforce in the area.
The home office restructure also would be on trend with what other retailers are doing. Target recently announced 1,700 jobs eliminated at its corporate headquarters in Minneapolis. That came on the heels of 1,500 jobs cuts announced in January. Dallas-based J.C. Penney cut 300 corporate jobs earlier this year, and American Apparel announced plans to slice $30 million in operating expenses over the next 18 months with corporate layoffs and store closures.
Dr. Greg Hamilton, a senior research economist with the Institute for Economic Advancement at the University of Arkansas at Little Rock, conducted an impact analysis on the possible layoffs. He looked at the impact of losing 200 high-paying management jobs and 800 lower-paying corporate jobs, and also looked at the impact of losing 100 high-paying jobs and 900 lower-paying jobs.
For his study, the higher-paying jobs were in the $100,000-$150,000 range, and lower-paying jobs were in the $50,000-$75,000 range. Other caveats of the study include:
• Annual salary is based on a 2,080-hour work year;
• Total working earnings is the product of the average wage per hour, the hours per year, and the number of jobs;
• The tax deduction is based on a 30% effective rate tax rate implying that workers have an after tax disposable income of 70% of earnings;
• Assuming workers save 5% (the current national savings rate), workers’ personal consumption expenditures are estimated at 65% of earnings; and
• If Walmart layoffs 1,000 workers, their local business expenditures may also change. No account has been made to take account of this effect.
• The rest of state effects are small. This in part reflects the assumption that local purchases is set at 100%. This means the 100% of the first round expenditure reduction falls in the Northwest Arkansas area. The leakages of the expenditure reductions to the rest the state occurs after the first round reduction.
The total impact of first scenario (100/900) is $40.462 million in reduced annual economic activity in Northwest Arkansas, with a loss of almost 331.2 non-Wal-Mart jobs resulting from the reduced economic activity of the 1,000 job layoff.
The total impact of second scenario (200/800) is $46.879 million in reduced annual economic activity in Northwest Arkansas, with a loss of almost 391.5 non-Wal-Mart jobs resulting from the reduced economic activity of the 1,000 job layoff.
Jeff Collins, an economist for The City Wire and former director of the Center for Business and Economic Research at the University of Arkansas, said other factors will reduce or inflate the impact of the rumored job cuts. Those factors include the number of jobs cut through attrition, job freezes, and how many of the high-paying layoffs are among those near retirement age.
He also agreed that job cuts are never a good thing, but job growth trends in the Northwest Arkansas economy could help absorb the impact.
Northwest Arkansas metro employment during June of 240,495 was above the 238,186 in May, and up 10,798 jobs, or 4.7%, compared to the 229,699 in June 2014. The jobless rate in the metro area during June was 4.2%, down from 4.3% in May and below the 4.7% in June 2014, according to figures posted July 29 by the U.S. Bureau of Labor Statistics. June’s data is subject to revision. The area jobless rate has been at or below 6% for 23 consecutive months, and below 5% the previous 16 months. Also, the metro economy has more than fully recovered from the Great Recession. The Northwest Arkansas annual employment average in 2006, the year before the recession, was 218,779.
“Will we notice it? Absolutely. But in the big scheme of things, and given the rate of growth, I would say the long-term effect will be pretty minimal,” Collins said of the job cuts, adding that the region has witnessed “several episodes of ebbs and flows” of Wal-Mart job gains and job cuts.
In terms of overall economic activity of the region, the impact of a $47 million reduction is less than 1% – 0.19% – of the gross domestic product of the metro area.
“On the margin the impact is real but it is on the margin. The BEA (U.S. Bureau of Economic Analysis) estimated FSR (Northwest Arkansas) Metro GDP at roughly $24 billion in 2013. The loss is a relatively small percentage of annual area GDP,” Collins said.
Also, Collins said some of those who might be laid off may be the type of people who have the skills to create their own job.
“You have to think that not everyone will leave. You may have some people stay in the area and become entrepreneurial. So there could be a positive from that aspect,” Collins said.