Study quantifies how much welfare spending goes to subsidizing low wages

The United States has a private economy, but relies on public spending to guarantee a (low) floor of economic wellbeing. And it’s no secret that, for decades, private companies have taken advantage of that public floor to pay workers less than what they’re worth.

But now that fact has a number: $153,000,000,000. According to a new study from UC Berkeley, highlighted by the Washington Post, that’s how much taxpayers spend in public assistance every year on families that are also receiving a paycheck.

These are families that don’t want to be on TANF or SNAP, and don’t want to be shamed by the GOP for not qualifying for the federal income tax, but the jobs they hold down aren’t paying them enough in wages to make ends meet on their own.

The Berkeley study highlights a number of alarming figures, some of which were from prior research:

  • “Inflation-adjusted wage growth from 2003 to 2013 was either flat or negative for the entire bottom 70 percent of the wage distribution.”
  • “Nearly three-quarters (73 percent) of enrollees in America’s major public support programs are members of working families.”
  • The share of non-senior wage earners receiving health insurance through their employer has fallen from 67 percent in 2003 to just over 58 percent in 2013.
  • 52 percent of state-level public assistance goes to working families.

Working families comprise:

  • 74 percent of the Earned Income Tax Credit (a program designed to subsidize low wages)
  • 61 percent of Medicaid enrollment
  • 36 percent of SNAP (Food Stamp) beneficiaries
  • 32 percent of TANF beneficiaries

It’s also important to note that these figures are only likely to increase, as their data only runs through 2013. The Medicaid expansion, a centerpiece of the Affordable Care Act, rolled out in 2014, and was designed specifically to cover families who previously made too much money to qualify for Medicaid but were too poor to purchase their own health insurance.

While a lot of these working families are in industries we’ve come to associate with low wages — about half of people who work in the fast food and child care industries receive public assistance — many don’t. A quarter of part-time college professors, many of whom have PhDs, are also receiving some form of public aid.

Minimum wage strike, via Creative Commons

Fast food workers’ strike, via Creative Commons

As this becomes a bigger problem, and as workers are starting to make clear that they aren’t OK with being paid at below-poverty levels, large companies have started to take notice. Looking to head off larger government action or, god forbid, a resurgence of organized labor, some corporations have proactively raised their wages…just enough so that they can cross their fingers and hope everyone goes home happy. McDonald’s, for instance, has pledged to raise its baseline wages to one dollar above whatever the local minimum is, coming out to an average of $9.90 per hour. Their CEO, Don Thompson, has also quietly indicated that the company would support an increase in the federal minimum wage to President Obama’s proposed $10.10.

But if data from Berkeley are any indication, even with these modest increases, taxpayers would still be left on the hook to pick up the slack for billions of dollars that companies should be paying their employees every year to keep them out of poverty. To take McDonald’s as an example again, the company could double their wages without having to increase prices one cent — it would still be profitable on the order of billions of dollars a year.

As the 2016 election cycle gears up, it’s worth reminding readers — and candidates — that neither major party is thinking seriously about economic inequality. Republicans would rather we not talk about it, as they’ve got shareholders to hold themselves accountable to, and Democrats are to worried about being called socialists to advocate for anything more than pay equity and modest minimum wage tweaks.

What’s more, higher wages make good economic sense: If workers can’t afford to buy what businesses are selling, everyone loses. Therefore, the eighth, twelfth and even fifteenth dollar of hourly wages paid to a worker gets immediately reinvested in the economy, as those dollars are spent on necessities such as food, gas, clothing and rent. If those dollars are instead given to shareholders via dividends in McDonald’s stock, they are either saved or held in other stocks — this creates a much lower economic multiplier than workers spending money on consumption goods.

More data is coming in to support this. As ThinkProgress has noted, preliminary findings from Seattle’s experiment with a $15 minimum wage are showing it to be a resounding success. Contrary to conservative lamentations that they bottom would fall out of the city’s vibrant restaurant industry, new restaurant permits have remained constant. Furthermore, the net number of food and drink establishments has actually increased since the minimum wage increase passed the legislature.

In other words, when the rubber meets the road, businesses are totally fine with paying their workers a decent wage if they know that a) other businesses can’t undercut them with lower wages and b) there will be more money in the local economy to support their slightly higher expenses.

So the next time you hear Marco Rubio, et al say that we need to reign in our deficit spending and that raising wages would slow economic growth, remember that as far as the data are concerned, he doesn’t have a leg to stand on. Low wages hurt the economy and the deficit. The folks who profit from keeping workers in poverty are running out of arguments to support their cause.


Jon Green graduated from Kenyon College with a B.A. in Political Science and high honors in Political Cognition. He worked as a field organizer for Congressman Tom Perriello in 2010 and a Regional Field Director for President Obama's re-election campaign in 2012. Jon writes on a number of topics, but pays especially close attention to elections, religion and political cognition. Follow him on Twitter at @_Jon_Green, and on Google+. .

Share This Post

© 2018 AMERICAblog Media, LLC. All rights reserved. · Entries RSS