You're Paying Way Too Much Money to Subsidize McDonald's and Walmart

April 14th 2015

One of the most common critiques of the welfare system goes something like this: government assistance programs undermine incentives to seek out work, and encourage a reliance on handouts, while bankrolling laziness and unemployment. But that stance may be fundamentally misguided: reliance on government assistance, it turns out, is a crucial supplement for a majority of low-wage workers. 

That's according to a new study released Monday by researchers at the University of California, Berkeley, that shows that despite a slowly growing economy, almost three-quarters of recipients of public assistance programs are members of families headed by a worker.

As wages fail to keep pace with inflation, subsidies for the poor have also become subsidies for the businesses whose employees who rely on assistance programs––instead of employer benefits––just to get by. Researchers found that the dearth of higher incomes in low-wage jobs is costing taxpayers an estimated $127.8 billion per year at the federal level to support the families of workers, and $25 billion per year at the state level. According to the study, which is the first to examine the state and federal cost of low-wage jobs to US taxpayers, some 56 percent of all state and federal spending on public assistance programs goes towards working families. 

"When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs," Ken Jacobs, chair of the labor center and a co-author of the report, said. "This creates significant cost to the states." 

The report examined four stalwart public assistance programs––Medicaid, Temporary Assistance for Needy Families, food stamps, and the Earned-Income Tax Credit––and found that reliance on such programs doesn't only include fast-food workers (52 percent), but also childcare workers (46 percent), home care workers (48 percent), and highly educated part-time college faculty (25 percent). The broad spectrum could be attributed to a couple of straightforward statistics: for a decade, from 2003 to 2013, wage growth was stagnant or negative for the bottom 70 percent of US workers. At the same time, benefits were being cut to trim budgets; over the same period of time, the share of non-elderly Americans with health insurance through their work fell by nearly 10 percent.   

The combination of flat wages and decreasing benefits has now led to a nearly $153 billion annual bill for taxpayers supporting assistance programs for low-wage workers who need them––a figure Jacobs says is in need of serious examination. "Our public-assistance programs provide a vital support system for American families. Raising wages would lift working families out of poverty and allow all levels of government to better target how our tax dollars are used," he said in a release. 

Certain corporations standout as examples of low wage pay giving way to worker reliance on public assistance programs. In November, ATTN: reported that Walmart, the nation's largest private employer, had not only been stockpiling money overseas to avoid taxes, but lobbying aggressively to lower the U.S. corporate tax rate from 35 percent to 25 percent, a move that, if completed, was projected to save the company an average $720 million a year. In the face of those efforts, the company's low-wage practices cost taxpayers an estimated $6.2 billion every year subsidizing their poorly paid, under-benefited workers. 

Walmart is just one of the few major corporations like McDonald's recently to announce wage increases that have failed to mollify workers and advocates in the run up to April 15th, when massive wage hike demonstrations are scheduled across hundreds of cities worldwide. 

Walmart is certainly not the only company to leave taxpayers to pick up the slack from low wages, though. But in a number of states recently, officials have taken steps to address the problem. California, Colorado, Maine, Oregon, and Washington all have bills on the table that would increase minimum wages to $12 or higher, and in Connecticut, legislators are considering a plan to impose fines on large companies that saddle taxpayers with subsidizing their workers by paying them less than $15 an hour. California even has plans to begin publishing the names of employers with more than 100 employees on their payroll receiving Medicaid, as well as the subsequent cost for the state next year. 

In the run-up to April 15th, experts and organizations are speaking out in support of raising wages. "Low-wage occupations in sectors such as retail, home care and restaurants are among the fastest-growing in the country," said Christine Owens, executive director of the National Employment Law Project in a release. "If we want an economy that is balanced and shares prosperity fairly, we must raise wages in these sectors so that they can serve as the cornerstones to rebuilding our nation's disappearing middle class." 

Among other things like the right to unionize, demonstrations will focus intensely on the fight for a $15 minimum wage, a figure supporters say is livable, and one that is closer to what the minimum wage would be if it kept pace with productivity growth since 1968––$16.54––instead of the current federal minimum of $7.25. 

"The idea that low-paid service jobs are only a stepping stone for teenagers or young people starting out in the workforce is plainly wrong," according to Irene Tung, a senior policy researcher at the National Employment Law Project. "Many people are spending decades working in jobs that pay too little to survive...the prevalence of low wages in many of our economy's growth sectors is a national crisis, and one that industry leaders in these sectors must take greater steps to address."