Participation and Losses in Multi-Level Marketing: Evidence from an FTC Settlement

49 Pages Posted: 9 May 2018 Last revised: 22 Feb 2022

See all articles by Claes Bäckman

Claes Bäckman

Aarhus University - Department of Economics and Business Economics; Knut Wicksell Centre for Financial Studies

Tobin Hanspal

WU Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)

Date Written: April 27, 2018

Abstract

More than 20 million Americans are affiliated with Multi-Level Marketing firms (MLMs), but there is little empirical evidence on who participates in this controversial part of today's labor market. We link data on 350,000 individuals cited in an FTC settlement with one of the largest MLMs to detailed county-level information. We find that the share of refund claimants is greater in areas with higher median income and where women are absent from the labor market, suggesting value in flexible work. However, check amount, a proxy for losses, are correlated with higher inequality and lower social capital, suggesting that the pitfalls accrue to vulnerable groups.

Keywords: Alternative work; Consumer financial protection; Direct selling; Financial planning; Household finance; Multi-level marketing

JEL Classification: J2, J3, J81

Suggested Citation

Bäckman, Claes and Hanspal, Tobin, Participation and Losses in Multi-Level Marketing: Evidence from an FTC Settlement (April 27, 2018). Financial Planning Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3175871 or http://dx.doi.org/10.2139/ssrn.3175871

Claes Bäckman

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

Tobin Hanspal (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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