Blog Post

The US retail crisis

What’s at stake: America is undergoing a retail sector crisis, partly related to the increase of competition from online commerce. We review recent contributions to this debate.

By: Date: July 17, 2017 Topic: Innovation & Competition Policy

The New York Times has some interesting data visualisation about the growth of e-commerce jobs and the decline of retail sectors employment (Figure 1). Online shopping accounts for only 8.4 percent of all retail sales in the United States, but it has had an outsize effect on the retail workforce. The Financial Times has a graphical review of the recent stock market sell-off on retail department stores, spurred by mounting concerns about the effects of online competition.

Figure 1

A related question would be what the implications are, not only for retailers and retail-property companies, but also for the financial firms that have given them money, from banks to life-insurance companies. The Economist argues that total amount of capital, both debt and equity, supporting American retailing (excluding Amazon) now exceeds $2.5trn.  The hundreds of thousands of jobs created by new online firms have not absorbed the job losses at traditional retailers. At the same time, the new jobs are concentrated in a handful of large cities and tech hubs (Figure 2 from NYT). Examining property data from CBRE brokerage, The Economist argues that some cities with fewer shops per person, such as New York and Seattle, may fare better, but that few parts of the country will be untouched.

Figure 2

The Economist has calculated what might happen to retailing workers (excluding those who work in car and fuel sales), under various assumptions about the growth of e-commerce. Assuming that employment in stores rises or falls with changes in those stores’ sales, and that labour productivity improves at historical rates, retailing jobs could shrink by 12%, or 1.5m jobs, by 2022. Under the most adverse scenario, employment could fall by 17% (figure 3 below).

Figure 3

Paul Krugman wonders why aren’t promises to save service jobs as much a staple of political posturing as promises to save mining and manufacturing jobs? One answer might be that mines and factories sometimes act as anchors of local economies, so that their closing can devastate a community in a way shutting a retail outlet won’t. A different reason mining and manufacturing have become political footballs, while services haven’t, involves the need for villains. Demagogues can tell coal miners that liberals took away their jobs with environmental regulations. They can tell industrial workers that their jobs were taken away by nasty foreigners. By contrast, it’s really hard to blame either liberals or foreigners for, say, the decline of retail service jobs. Finally, it’s hard to escape the sense that manufacturing and especially mining get special consideration because their workers are a lot more likely to be male and significantly whiter than the workforce as a whole. As for what can be done to stop service-sector job cuts, Krugman thinks that there is not much. While we can’t stop job losses from happening, we can limit the human damage when they do happen, by guaranteeing health care and adequate retirement income for all, providing aid to the newly unemployed and acting to keep the overall economy strong.

Dean Baker at CEPR argues that Paul Krugman is wrong on retail jobs, and the reason why they are not salient is that they are not very good jobs. Jobs in mining and manufacturing tend to offer higher pay and are far more likely to come with health care and pension benefits than retail jobs. A worker who loses a job in these sectors is unlikely to find a comparable job elsewhere. In retail, the odds are that a person who loses a job will be able to find one with similar pay and benefits. In mining the average weekly wage is $1,450, in manufacturing it is $1,070, by comparison in retail it is just $555. This difference in job quality is apparent in the difference in separation rates by industry: it was 2.4 percent for the most recent month in manufacturing and 4.7 percent in retail, almost twice as high. Baker argues that since only a small segment of the workforce is going to be employed in manufacturing regardless of what we do on trade, we should be focused on making retail and other service sector jobs good jobs. For Baker, the number one item on the agenda should be a concern with the Fed’s rates hikes, which would slow the economy and reduce the rate of job creation.

Noah Smith argues that the retail apocalypse could actually lead to a suburban renaissance. Modern U.S. cities, especially the suburbs, are built around retail stores. If those stores evaporate into cloud servers, huge gaping holes will open up in the economic landscape of almost every suburb and town in the U.S.. The decline of physical retail will thus force the U.S. to rethink its entire idea of what a city is for. Why do people live near each other, if not to shop at the same places? One reason is to go out to eat. Another reason for people to cluster is to take advantage of schools, day-care facilities, hospitals and other local services. Rebuilding the suburbs will mean a lot of spending at the local and state level. Working-class Americans need jobs, and this sort of epic construction project would create a lot of them. If the retail apocalypse leads to a suburban renaissance, maybe it’s something to be relished rather than feared.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

A few good (wo)men – on the representation of women in economics

Last week, the American Economics Association Annual Meetings held a session on Gender Issues in Economics and later announced that a new code of professional conduct is in the pipeline. In this blogs review we revise the recent contributions on female representation and perception in economics.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: January 15, 2018
Read article More on this topic More by this author

Blog Post

The Republican Tax Plan (2): The debate rumbles on

Reactions to the Republican tax plans continue, concentrating on different aspects of the proposed legislation. We review the latest contributions.

By: Silvia Merler Topic: Global Economics & Governance Date: December 18, 2017
Read article More by this author

Blog Post

The DSGE Model Quarrel (Again)

Dynamic Stochastic General Equilibrium models have come under fire since the financial crisis. A recent paper by Christiano, Eichenbaum and Trabandt – who provide a defense for DSGE – has generated yet another wave of reactions in the economic blogosphere. We review the most recent contributions on this topic.

By: Silvia Merler Topic: European Macroeconomics & Governance, Global Economics & Governance Date: December 11, 2017
Read article More by this author

Blog Post

The Bitcoin Bubble

The price of bitcoin has just passed $11,000. A year ago it was worth less than $800. Economists and commentators are thus increasingly concerned that this may be a bubble waiting to burst. We review recent opinions on the topic.

By: Silvia Merler Topic: Finance & Financial Regulation, Global Economics & Governance Date: December 4, 2017
Read article More on this topic More by this author

Blog Post

The Republican Tax Plan

As the Trump administration’s tax plan continues its way through the legislature, we review economists’ and commentators’ recent opinions on the matter.

By: Silvia Merler Topic: Global Economics & Governance Date: November 27, 2017
Read article More on this topic More by this author

Blog Post

Has the Phillips curve disappeared?

The Phillips curve prescribes a negative trade-off between inflation and unemployment. Economists have been recently debating on whether the curve has disappeared in the US and Europe. We report some of the most recent views.

By: Silvia Merler Topic: Global Economics & Governance Date: November 21, 2017
Read article More on this topic More by this author

Blog Post

Powell's Federal Reserve

With the appointment of Jerome Powell as the next Fed’s chairman, President Trump break a tradition of bipartisan re-nomination and chooses someone who is not an economy by formation. We review economist’s opinions on this choice and the challenges ahead.

By: Silvia Merler Topic: Global Economics & Governance Date: November 13, 2017
Read article More on this topic More by this author

Blog Post

The Bank of England’s dovish hike

For the first time since 2007, the Bank of England raised interest rates, with a hike of 25 basis points. At the same time, it provided forward guidance that outlines a very gradual path for future increases. We review the economic blogosphere’s reaction to this decision.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: November 6, 2017
Read article More on this topic More by this author

Blog Post

The capital tax cut debate

How much do workers gain from a capital gains tax cut? CEA chairman Hasset claims the tax cut will cause average household labour income to increase by between $4000 and $9000. Several commentators note this implies that more than 100% of the incidence of the tax is on labour. This question has triggered a heated discussion in the economic blogosphere, which we review here.

By: Silvia Merler Topic: Global Economics & Governance Date: October 30, 2017
Read article More on this topic

Blog Post

Phillips vs. Pass-through, or the changing ECB understanding of inflation

This blog post looks at how the approach of the ECB to inflation has changed over the years. It shows the ECB has moved, over the years, from a small towards a large country approach, giving more weight to the improving employment conditions than to the appreciating exchange rate in deciding its monetary policy moves.

By: Francesco Papadia and Alessandra Marcelletti Topic: European Macroeconomics & Governance Date: October 25, 2017
Read article More by this author

Blog Post

Bailout, bail-in and incentives

Ever since the outbreak of the global financial crisis, more and more rules have been developed to reduce the public cost of banking crises and increase the private sector’s share of the cost. We review some of the recent academic literature on bailout, bail-in and incentives.

By: Silvia Merler Topic: Finance & Financial Regulation, Global Economics & Governance Date: October 23, 2017
Read article More on this topic More by this author

Blog Post

An irrational choice: behavioural economist wins Nobel Prize

Richard Thaler was awarded this year's Nobel Prize in Economics for his contributions to the field of behavioural economics. His work documents a set of cognitive biases affecting economic decision-making and casts doubt on commonly-held assumptions about the rational ‘homo economicus’ that inhabits economic models and theories. What are the implications for the economics discipline and public policy?

By: Konstantinos Efstathiou Topic: Global Economics & Governance Date: October 16, 2017
Load more posts