NCPA - National Center for Policy Analysis


February 15, 2006

Critics of Wal-Mart claim the company pays its employees wages that are too low, forcing them to seek assistance from public welfare programs. However, economics professor Michael J. Hicks of the Air Force Institute of Technology finds that the empirical evidence on Wal-Mart is most likely representative of the retail industry as a whole.

Hicks examined the effect of Wal-Mart?s presence in 48 states on the expenditures of three anti-poverty programs: Medicaid, AFDC/TANF and food stamps. Using two variables to measure Wal-Mart presence, the number of stores in a state and the share of Wal-Mart employees in the area?s retail sector, he found:

  • A one-percent increase in Wal-Mart's retail share is associated with a 1.5 percent increase in Medicaid expenditures per capita (estimated at about $898 per worker).
  • Using the store count variable, the effect is even smaller; one additional Wal-Mart store increases Medicaid expenditures by a little more than 2/10 of one percent.
  • However, a one-percent increase in Wal-Mart's retail share is associated with a 3.3 percent decline in AFDC/TANF expenditures.
  • Furthermore, there is no correlation between the presence of Wal-Mart stores or the share of Wal-Mart employees in the retail sector and expenditures on food stamps.

Additionally, Hicks found that the percentage of Wal-Mart employees receiving Medicaid is no different from the percentage of retail industry employees as a whole. The industry-wide average is about 11 percent, while the AFL-CIO reports that Wal-Mart employees receiving Medicaid vary from 2.3 percent in Washington to 24.9 percent in Tennessee.

As a whole, the labor force of discount merchandisers, such as Target, Ames and Dollar General, is dominated by low-skill, low-wage workers in a competitive market, so such findings should not be exclusive to Wal-Mart, says Hicks.

Source: Michael J. Hicks, "Does Wal-Mart Cause an Increase in Anti-Poverty Program Expenditures?" Air Force Institute of Technology and Marshall University; available at EconPapers, Public Economics Working Papers 2005, no. 511015.

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