When Good Instruments Go Bad

Emek Basker

No 706, Working Papers from Department of Economics, University of Missouri

Abstract: This note examines the instrumental variables method used by Neumark, Zhang, and Ciccarella (2005) to analyze Wal-Mart's effect on retail labor markets, and exposes major flaws in that methodology. Neumark, Zhang, and Ciccarella use an interaction between distance from Wal-Mart's headquarters and time effects to predict Wal-Mart's presence in a county, and find that each Wal-Mart store destroys, on average, approximately 200 retail jobs. These findings are in stark contrast to Basker (2005) who found a small, but positive and statistically significant, effect on jobs. I show that the IV estimates obtained by Neumark, Zhang, and Ciccarella confound Wal-Mart's causal effect with other factors. To illustrate the problem, I show that their methodology implies a large impact of Wal-Mart not only on retail employment but also on county manufacturing employment. Reduced-form estimates of the regressions show statistically and economically indistinguishable effects in counties with and without Wal-Mart presence, implying that other factors are most likely driving the results.

Keywords: Instrumental Variables; Wal-Mart; Retail Employment (search for similar items in EconPapers)
JEL-codes: C21 J21 L81 (search for similar items in EconPapers)
Pages: 31 pgs.
Date: 2007-03-15
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://drive.google.com/file/d/1EhjNML3MhtNZnGSTe ... jKo/view?usp=sharing (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:umc:wpaper:0706

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Missouri Contact information at EDIRC.
Bibliographic data for series maintained by Chao Gu ().