The Link Between Walmart, Food Stamps and CSR

WalmartIn Jacob Kornbluth’s film “Inequality for All,” entrepreneur and venture capitalist Nick Hanauer says: “The most pro-business thing you can do is to help middle-class people thrive.”

I thought about this quote while reading a new report, “How Taxpayers Subsidize America’s Biggest Employer and Richest Family,” published on April 15 (aka Tax Day) by Americans for Tax Fairness, a coalition of progressive organizations. The report estimates that Walmart workers relying on public assistance programs due to low wages cost American taxpayers $6.2 billion a year.

Another interesting figure presented in the report was that Walmart has captured 18 percent of the SNAP (food stamps program) market. Using that figure, the authors estimate that “the company accounted for $13.5 billion out of $76 billion in food stamp sales in 2013.”

It got me thinking that if a substantial number of Walmart’s employees in the U.S. (1.3 million in total) receive food stamps, then the company actually profits twice from paying low-wages – not only does it reduce its costs, but it also increases its income by receiving food stamps from its employees shopping at Walmart.

But is this really the case? Is Walmart that far away from the vision Nick Hanauer offers in quote? And if so, what does it say about its commitment to corporate responsibility or its “responsibility to lead”?

First, I wanted to check how many Walmart employees actually receive food stamps.

As Krissy Clark reported on Marketplace’s excellent series (in collaboration with Slate) “The Secret Life of a Food Stamp,” there are no federal numbers on where employed food stamp recipients work. Nevertheless we can make an estimation based on Clark’s report that in Ohio, where the state keeps a list of the top 50 companies with the most workers on food stamps, about 15 percent of Walmart’s workforce receives food stamps in the state. If this is the case elsewhere in the U.S., then 15 percent of Walmart employees, or 245,000 people and their families, receive food stamps.

The second question is how much Walmart benefits from the food stamps its employees receive. The average monthly food stamp benefit per household in 2013 was about $275, or $3,300 annually. Multiply it by 245,000 households and you get more than $800 million. On average, food stamp recipients spend 18 percent of their food stamps at Walmart – if this is the case with Walmart employees, then the total amount they would spend in Walmart stores is about $145 million. Since they have employee discounts, I would assume these employees spend more at Walmart — but it’s hard to guesstimate just how much.

Based on these estimations I believe Walmart employees received last year $800 million in food stamps from the federal government and spent somewhere beyond $145 million of it in Walmart.

Does this situation make any sense? Not really. After all, Walmart made $17 billion in profits in 2013. You might wonder if Walmart could still be profitable if it offered all of its employees a decent pay so none of them could qualify for food stamps.

Marketplace’s Andrew Bouve did the math and found out that Walmart would need to raise the average pay of its cashiers, for example, from an estimated $8.81 an hour to $13.63 an hour for them to no longer be eligible for food stamps. The overall cost of such a raise would be $4.8 billion, or 28.2 percent of the company’s profits. The company could also pass these costs to the consumers by raising its prices by 1.4 percent on average.

It’s not likely that Walmart would be interested in any of this. If you listen to the company’s comments on Marketplace’s series, you learn that Walmart thinks that there’s nothing wrong with the salaries it pays. “It’s really not where you start; it’s where you end up,” David Tovar, Walmart’s vice president of communications explained, adding that the number of Walmart employees on food stamps is a reflection of the state of the U.S. economy, including the country’s growing food stamp use.

Tovar may be right, but isn’t it also a result of the low wages Walmart pays to many of its employees? After all, even in the retail business you can pay entry-level employees higher salaries and still be very successful as Costco proves, paying $11.50 to $12 per hour to starting hourly workers, with increases in pay after just 800 hours of work.

And what about Walmart’s overall approach to food stamps? “We would love nothing more than a day when we didn’t have to have programs like that,” Tovar told Marketplace. I believe Tovar really means it, but I’m not sure if it reflects the company’s overall approach to food stamps given that they may represent over 4 percent of the company’s sales.

You can find an indication of Walmart’s dependence on food stamps in its latest Wal-Mart’s 10-K report, issued late last month. As Michael Hiltzik reported on LA Times, among the material risk factors Walmart disclosed to its share holders you can find “changes in the amount of payments made under the Supplement Nutrition Assistance Plan and other public assistance plans, (and) changes in the eligibility requirements of public assistance plans.”

So while Walmart might say it hopes to see the day we don’t need food stamps anymore, it seems like it is actually worried about such a day and its consequences on the company’s bottom line. The fact that Walmart also contributes to this trend with about 245,000 of its employees receiving food stamps also calls into question its corporate responsibility claims.

A company that believes to have the responsibility to lead should show at the very least how it helps its employees make ends meet without the assistance of food stamps.  Until then I would take its claim to have a “responsibility to lead” with a grain of salt.

Image credit: Thomas Hawk, Flickr Creative Commons

Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons The New School of Design. You can follow Raz on Twitter.

Raz Godelnik

Raz Godelnik is an Assistant Professor and the Co-Director of the MS in Strategic Design & Management program at Parsons School of Design in New York. Currently, his research projects focus on the impact of the sharing economy on traditional business, the sharing economy and cities’ resilience, the future of design thinking, and the integration of sustainability into Millennials’ lifestyles. Raz is the co-founder of two green startups – Hemper Jeans and Eco-Libris and holds an MBA from Tel Aviv University.

4 responses

  1. The cynic in me suspects this is very much part of the plan for WalMart. Easy way to pay people less because, hey, they get food stamps. Would the workers actually be that much better if they got paid more and thus became ineligible for food stamps? It’s actually a tough call – but the taxpayer would certainly get a break.

  2. Getting away from dependence on social welfares is more a paradigm change in the social thought process, than simply attacking companies for wanting to maintain a healthy bottom line. We should be asking questions like, “How do we stymie inflation?” Raising pay only raises the cost of goods, we are just chasing the issues in this scenario.”How do we eliminate the vast majority of welfare?” Eliminating wasteful spending on social programs that have a poor track record would do wonders towards easing the burden on taxpayers. We are at a precipice now wherein those using welfare are close to outnumbering those with jobs. “How do we control the abuses that come with welfare and end up costing the taxpayer more?” Society cries foul when the words “drug test” are uttered to receive welfare. Yet we have people pumping out kids to take advantage of the system in place. The social welfare system needs reformed in a major way.

    The easiest way to combat welfare is summed up in the biggest question, “Where are all the jobs?” Well, they have left for greener pastures. It is too expensive to operate a business in America! over taxation and union thuggery have driven companies like General Motors and Chrysler to other countries. What we need is less regulation, subsidies, and taxation on businesses, and instead incentivize those who set up shop and offer jobs to people. Instead, we attack people for their successes and label them as greedy. There was a time when we looked up to successful people, nowadays we condemn them. The government sells welfare because IT PROFITS TWICE!!!

    1. “Raising pay only raises the cost of goods”

      So what? Many goods are way too cheap – especially the garbage that WalMart sells. Raising the price on some things means less consumption, higher quality, less waste and indeed higher wages.

      The rest of your point is flawed too. Yes, jobs have left, but only because of cheap, dodgy working conditions overseas. That’s just a race to the bottom….

    2. OK let’ talk jobs. Walmart has also pledged to create jobs among its may other lip service PR moves. The fact is the number of stores and volume of sales has far outstripped employment growth. Walmart stores are understaffed today compared to Walmart. And the company has drastically cut back on hiring full time employees because part-timers are cheaper. The commitment to hire vets. For sure. Anyone who has served our comapny deserves a minimum wage position and less than 30 hours of work per week. And on the side, as Walmart does, have employee workshops on how to sign up for public assistance.

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