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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