Low Wage Employers Cost American Families a Quarter Trillion Dollars

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This post first appeared at ThinkProgress.com.

Azi Ebrahimi, right, demonstrates for higher wages for fast-food industry workers during a one-day strike. (AP Photo/John Amis)

From 2007 to 2011, the biggest public benefits programs spent $243 billion each year on working families who live in poverty or on the brink of it because their jobs pay so poorly, according to a study published Tuesday by researchers at the University of California, Berkeley. The research focuses on fast food workers as exemplifying the plight of low-wage workers and the costs that low wages pass along to taxpayers.

The study focused on the largest direct assistance programs to establish the cost of the “last line of defense between America’s growing low-income workforce and the want of basic necessities.” The combined cost of public health care programs, the Supplemental Nutrition Assistance Program (SNAP, or food stamps), the Earned Income Tax Credit that targets low-income workers, and Temporary Assistance for Needy Families (TANF, formerly known as welfare) for working families averaged $243 billion from 2007 to 2011.

Fast food workers are particularly likely to rely on these programs. More than half of all front-line fast-food workers who work at least 30 hours per week are enrolled, compared to 25 percent of the overall workforce. Fast food workers and their families receive $7 billion per year in public assistance, $3.9 billion of it in the form of health care programs like Medicaid and the Children’s Health Insurance Program (CHIP). The fast food workers included in the study were nearly five times less likely to receive health insurance through their work than is typical across the entire economy, at 13 percent compared to 59 percent.

Similar research focused on Walmart’s business model found that a single 300-employee Walmart Supercenter incurs about a million dollars per year in public benefit costs.

If anything, the study understates the scope of the public cost of low wages. The researchers did not attempt to factor in programs that don’t directly supplement a family’s income, so job training, educational programs and other indirect forms of public assistance are not included. Furthermore, some cash transfer programs were not included in the analysis due to spotty data.

The authors suggest that pushing fast food wages up would be a particularly effective way of both reducing poverty and shrinking taxpayers’ bill for public benefits programs. The industry can bear such increased labor costs because of the nature of the service business. “Rather than reflecting the competitive dictates of global product markets,” the authors conclude, “the low-wage structure of fast-food and other domestic service industries reflects a mixture of market conditions and policy choices about minimum standards for work.” The median wage for fast food workers in their study was $8.69 per hour. Strikes have spread across the country this summer as fast food and other low-wage retail employees demand livable wages.

Alan Pyke is the Deputy Economic Policy Editor for ThinkProgress.org.
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  • cgmcle

    You forgot a major cause — the decline of our national economy and job market. According to a recent analysis, 121% of the income gains since the start of the recovery in 2010 have gone to the top 1%. In other words, on average, the top 1% have done just fine while, on average, 99% of us have continued to lose ground. In addition, most of the jobs lost during the recession paid middle-class wages, while almost all of the jobs created during the recovery pay lower-class wages. Clearly, many people have been irresponsible and are largely responsible for their own situations. But many more have been affected by conditions beyond their control.

  • Hgeyer

    I have heard that the Waltons, the owners of Walmart, recieve $15,000 a year, in profit, for each employee they have while the taxpayer pays out as much as $5000 per employee in government assistance in order for those employees to survive. Would it be so bad if they only made $10,000 per employee and the taxpayers were off the hook? Greed is the cause of the decline of the american way of life.

  • GrumpyDave

    If workers cannot make a living wage, ultimately they will not be able to live. Then where will the Waltons of this country be, when the workforce is diminished to the point where it is insufficient.

    Perhaps we should adopt the Chinese social model of one child per family. That way there won’t be a surplus of workers, and the lower numbers will die off more quickly, thereby lowering the tax burden.

    It sounds like you are for bigger government, or perhaps just more intrusive government. Governing for the benefit of the greatest number is not intrusive – making sure that the greatest number suffers the most for the benefit of the miniscule few is.

    FWIW – let’s apply your theory of no family until you can “afford” it to the rest of your life. Have a mortgage? Turn your home back to the bank, you can’t afford it right now. Buying a car? Turn it back in, you didn’t have the money to buy it in the first place. Get rid of your credit cards, lines of credit, and any other financial tool you may possess. Those are all indicators that a) you cannot afford the things you want or need at this time, instead having to purchase them over time, and b) that you are either greedy or addicted to instant gratification – you must have everything you want now. No waiting to save up for those things, just put them on plastic.

  • Kellie Nicholson

    Oldirishman, you stated it so simply. When we raise wages, there is more money in circulation (rather than sitting in the bank accounts of millionaires and billionaires), creating greater demand for products and services, which increases employment, generating more tax revenues and decreasing the need for social programs like welfare and food stamps. Yes, some businesses will close, but the way we are headed, they all will very soon when there is NO money to buy their products.

  • Anonymous

    Dear GOP – time to have a chat with your DONORS. The service industry is the largest industry… time to pay up, these fat-cats living in their castles (Mr Papa John et al) are using our taxpayer dollars to subsidize their wealth.

  • Anonymous

    NO. You are distracted by the fact that the service industry is the #1 employer and using you and me to subsidize their castles.

  • The Zen Carpenter

    Here is another way to look at this issue, The “citizens united” court
    decision says in essence that money is speech, so tell Wal-Mart and other “big
    box” stores we don’t approve of worker exploitation by not giving them money.
    Or to put it another way,” If you don’t want the monster to eat you don’t feed
    him”. I realize this is simplistic and maybe unrealistic since they have
    succeeded in eliminating any completion and as a result lowered wages for their
    workers to the point that those workers can’t afford to buy the products at the
    low prices they brag about. It is sad that these workers have been left out of
    the “American dream”. This is the slavery of our day and Wall Street is the
    slave master.

  • Diana Reichardt

    Time for a realistic minimum wage. Companies will not pay a decent wage unless forced to but they have been making more than their fair share for long time and not paying a lot in taxes. It’s time for these outfits to start doing the right thing. I think this is one of the reasons corporations are wanting the illegals to acquire amnesty. Then they can pay them the lesser wage because the average citizen is near their breaking point.

  • Anonymous

    Walmart makes $13k pre tax profit per min. wage employee and that costs the US taxpayer $5k per year.

    So technically, Walmart makes $18k pretax profit per min. wage employee.

    http://www.alternet.org/labor/apple-walmart-mcdonalds-whos-biggest-wage-stiffer

  • IAM

    yes, and the Waltons are Good Old Boys…meaning white southern Baptists; so much for the horse hockey of the CHRISTIAN RIGHT and the Conservatives. Take a look at the personal wealth of those people who closed down the govt…this is not govt for and by the people….it’s a govt by and for people like the Kochs and the Waltons…Christians? DELUSIONIONAL GREEDY RACIST HATERS is more like it

  • exposerofbs

    I worked at Publix the multi-billion dollar store, more than half of all employees are on food stamps and their families cannot afford to buy their food there. Yes, it is over priced but, that makes for a sad case, half or more are college educated but Publix won’t give anyone FT anymore so we would bring food to each other from home for lunch.