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+. .

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23 Responses to “Study quantifies how much welfare spending goes to subsidizing low wages”

  1. Moderator3 says:

    I didn’t mean to sound annoyed. I guess soon I will be standing on my lawn and waving my fist in the air as I tell the kids to get off my lawn.

  2. ComradeRutherford says:

    “it should be adequate for one or two people.”

    Depends on where you live, but $31K is not much at all. And no where near enough if you have kids.

  3. ComradeRutherford says:

    I did some ‘back-of-the-envelope’ math and McDonalds could increase their US employee’s pay by $3/hour and still show a large profit.

  4. ComradeRutherford says:

    Americans just have to get used to not being paid for their work. Free Labor been the goal of American Conservatives ever since they lost WWII.

    Paying employees interferes with profit.

  5. Demosthenes says:

    Okay. I just reflexively do it. My apologies if I annoyed you.

  6. Moderator3 says:

    You do not need to point out spam. It is just as obvious to us as it is to you. We actually do not watch the blog 24/7, because you know – we have lives. If you really feel you must point out spam, flagging it is the fastest way of bringing it to our attention.

  7. Demosthenes says:


  8. Guest says:

    ✦☑✦☑✦I RECEIVED FIRST DRAFT OF $13000!@ak13:




  9. Demosthenes says:

    Walmart’s selfish owners should be required to pay extra on taxes to cover their poorly paid employees getting food stamps and Medicaid.

  10. George Kafantaris says:

    Working for a living is one thing. Working for someone else’s luxury living is another. Workers unite. There is power in numbers. And you’ve been taken advantage of too long.

  11. BeccaM says:

    It’s the classic truism: Give a rich man a thousand bucks, and he’ll put it in the bank. Give a poor person a thousand bucks and they will spend it.

    Why the difference? Because beyond a certain point, the wealthy don’t need to spend money; they can hoard it. The poor, on the other hand, not only need to spend it, they’d also probably like to have a few of the niceties of a more comfortable life.

    Paying the disadvantaged more money is extremely stimulative for the overall economy. The family which could not possibly imagine eating out at a restaurant occasionally is able to do so when they earn more than the bare minimum wage. That money supports the restaurant…which pays its workers and suppliers, who then have money to spend, and it just snowballs from there.

    A major cause of the relative economic stagnation of the last generation has been the transfer of income and wealth from the poor to the rich. The rich don’t spend; they invest in financial instruments that artificially create phony worth. The poor and shrinking middle class meanwhile are constantly cutting back, which is a drag on the economy as a whole.

  12. Houndentenor says:

    There have been people preaching the debt-free gospel for quite some time, in particular liberal Suze Orman and libertarian-conservative Dave Ramsay. It’s not like that’s coming from one side or the other. The moment people started to view the equity in their homes as an ATM we were screwed. That and mortgages that were basically admissions that the buyer never had any intention of ever paying off the principal before reselling the home. Plenty of people sounded alarms over that insanity long before it came crashing down. It’s just that the media idiots and the bankers weren’t and would like you to forget that they were part of the swindle.

  13. Naja pallida says:

    That’s because it’s not really today’s neo-feudalism, it’s the same old feudalism it always was. We just have different titles for Lords now, like “Chief Operating Officer” or “Chief Executive Officer” instead.

  14. Naja pallida says:

    McDonald’s makes in one quarter what it costs the government in wage and healthcare subsidies over the course of a year. Walmart revenues are twenty times what it would cost the company to get off the government dole. I’m not talking about a few dollars raise or something, like both companies have already suggested they would consider, I mean they could entirely eliminate their employees need for government assistance, and still rake in a very comfortable profit for their share holders. The problem is, we’ve just let them get away with this for so long, that they now consider it a normal and necessary way of doing “business”.

  15. 2karmanot says:

    When debt becomes asset, capitalism is doomed. You would think that after the last Great Depression that lesson would have been learned. Here we go again!

  16. 2karmanot says:

    “what Dante would say about that?” probably that they are BFF’s with most Popes.

  17. 2karmanot says:

    “the rest of us rent from them”——-Marx’s thesis, spot on. If you can wade through them read the pre Manifesto 1840’s essays…….reminds us of today’s neo-feudalism.

  18. JaneE says:

    $31,000 ($15/hr) won’t provide a lavish lifestyle, but it should be adequate for one or two people. Businesses should be able to survive without using the taxpayers to foot the bill for their employees. If you can’t pay someone a living wage and make a profit, maybe you aren’t a good enough businessman. When you can’t pay your employees a living wage while you rake in millions or billions in profit – that is just greed and it isn’t good business either.

  19. Houndentenor says:

    In the past in order to have wealth you had to build something in the process. Now you can just shuffle electronic representations of money around in completely dishonest ways and get incredibly rich without actually adding any wealth for anyone else. Mortgage back securities and other nonsense should not be confused with an actual industry or business that actually provided goods and services that people needed or at least wanted. Now getting rich is about being a white collar criminal and we need to think about what rewarding such crime is doing to our country. And it’s still going on, by the way.

  20. Bill_Perdue says:

    This Wednesday we’ll be having a rally in Las Vegas for a $15 an hour instead of Obama chump change proposal for $10.10 and hour. Link here to find one in your area

    Democrats and Republicans have deliberately pushed wages down since the Carter Administration using deregulation, the export of jobs overseas and union busting. Bill Clinton was the worst of them.

    HRH HRC’s hands are dirty too. “Clinton served on Wal-Mart’s board of directors for six years when her husband was governor of Arkansas. And the Rose Law Firm, where she was a partner, handled many of the Arkansas-based company’s legal affairs.” Common Dreams Mrach 12 2006

    David Nassar of the AFL-CIO’s Wal-Mart Watch said “We respectfully disagree with former President Clinton’s characterization of Wal-Mart as a benign, benevolent corporation striving for self-improvement either during Sen. Clinton’s tenure on the board or at present…” and “while we don’t have any insight into what Sen. Clinton advocated for while on the board of Wal-Mart, we do know that Wal-Mart has made no meaningful progress regarding the company’s poor business practices, including gender discrimination, low wages, inadequate health care, overseas sourcing or environmental degradation…” ABC New Jan 24 2008

    The Clintons are subsidized by Wal-Mart and other .01%ers through their ‘contributions’ to the Clinton Family Foundation. It’s the corporations way of saying thank you for NAFTA, DOMA, DADT and deregulation.

  21. Indigo says:

    They missed a lot but nicely illustrate the principle that focusing on only one thing, accumulating lots of money in their case, does work. They did it by the simple process of killing their conscience and sense of social responsibility. Moral suicide of the soul, in short. I wonder what Dante would say about that?

  22. Houndentenor says:

    But that extra money will come out of their bonus! How will they get by without those millions? Ford was a smart man. If the very people who make the cars couldn’t afford to buy one, who could? How could he make money selling cars no one could afford to buy. You are right that the 1% want to turn us into a feudal state where a few people own everything and the rest of us rent from them. Somehow they missed the history lesson that those are the countries that had communist revolutions (Russia, Cuba, et al.) while the countries with a middle class never have. I guess that doesn’t come up in Atlas Shrugged.

  23. Indigo says:

    Henry Ford outraged his fellow Golden Age millionaires almost a century ago by doubling his workers’ wages. He reasoned that he could best stay in business by making it possible for the workers to buy his automobiles. Today’s neo-Golden Age wealthy don’t see it that way. They envision a feudal structure they are busily a-building. It looks like they’re succeeding in reducing the entire nation to poverty by ignoring rational explanations of why that’s a mistake. With the Supreme Court dining at their table, I don’t see how to reverse the trend, short of a Révolution.

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