The High Cost of Low Wage Work

$15 an hour is cheap compared to what the US has to pay to support full time workers making a lot less.

$150 billion a year, to be precise, as the following article explains. That is in the form of programs that provide working families whose employers refuse to pay a living wage with the basics to avoid destitution. JL

Patricia Cohen reports in the New York Times:

State and federal governments spend more than $150 billion a year on four key antipoverty programs used by working families: Medicaid, Temporary Assistance for Needy Families, food stamps and the earned-income tax credit, which is specifically aimed at working families.

A home health care worker in Durham, N.C.; a McDonald’s cashier in Chicago; a bank teller in New York; an adjunct professor in Maywood, Ill. They are all evidence of an improving economy, because they are working and not among the steadily declining ranks of the unemployed.

Yet these same people also are on public assistance — relying on food stamps, Medicaid or other stretches of the safety net to help cover basic expenses when their paychecks come up short.

And they are not alone. Nearly three-quarters of the people helped by programs geared to the poor are members of a family headed by a worker, according to a new study by the Berkeley Center for Labor Research and Education at the University of California. As a result, taxpayers are providing not only support to the poor but also, in effect, a huge subsidy for employers of low-wage workers, from giants like McDonald’s and Walmart to mom-and-pop businesses.

Low Wages and the Safety Net

Working families were the biggest beneficiaries of federal programs aimed at the poor in all but six states, a recent study finds.

Working families’ share of

federal safety net programs

Annual average, 2009 to 2011

40%

45

50

55

60

65

ME

N.H.

WA

VT

MT

N.D.

OR

MI

MA

ID

N.Y.

WI

S.D.

R.I.

WY

MI

CT

PA

IA

NE

OH

NV

N.J.

UT

IL

IN

W.VA

CO

DE

KA

VA

MO

CA

MD

KY

N.C.

TN

AZ

OK

N.M.

S.C.

AR

AL

GA

MS

TX

LA

AK

FL

HI

Highest

67%

Lowest

44%

Note: The study included Medicaid, the Children’s Health Insurance Program, Temporary Aid to Needy Families, the earned-income tax credit and the Supplemental Nutrition Assistance Program.

Source: U.C. Berkeley Center for Labor Research and Education

APRIL 12, 2015

By The New York Times

Taxpayers pick up the difference, he said, between what employers pay and what is required to cover what most Americans consider essential living costs.

The report estimates that state and federal governments spend more than $150 billion a year on four key antipoverty programs used by working families: Medicaid, Temporary Assistance for Needy Families, food stamps and the earned-income tax credit, which is specifically aimed at working families.

This disparity has helped propel the movement to raise the minimum wage and prompted efforts in a handful of states to recover public funds from employers of low-wage workers. In Connecticut, for example, a legislative proposal calls for large employers to pay a fee to the state for each worker who earns less than $15 an hour. In 2016, California will start publishing the names of employers that have more than 100 employees receiving Medicaid, and how much these companies cost the state in public assistance.

“The low-wage business model practiced by many of the largest and most profitable employers in the country not only leaves many working families unable to afford the basics, but also imposes significant costs on the public as a whole,” Sarah Leberstein, a senior staff lawyer with the National Employment Law Project, testified recently before Connecticut lawmakers.

Other states, as well as several cities, including Washington, D.C., have moved to raise the minimum wage above $10, while local activists in fast food, retailing, home care, airport services and other low-wage industries have organized protests to demand $15 an hour.

Adriana Alvarez, a cashier at a McDonald’s in Chicago, is among the people pushing for higher wages. After five years with the fast-food giant, Ms. Alvarez, 22, earns $10.50 an hour, well above the federal minimum wage of $7.25. Still, she depends on food stamps, Medicaid and a child-care subsidy to help get through the week.

“He eats a lot,” Ms. Alvarez said of her 3-year-old son, Manny, with a laugh. He also drinks a lot of milk, she said — “a half-gallon every two days” — and because he is lactose intolerant, he requires a more expensive brand, using up most of her $80 allotment of food stamps.

Most everyone else she works with — including many 10-year-plus veterans of the franchise — receives food stamps, said Ms. Alvarez, who started working at McDonald’s full time when she was in high school.

She depends on Medicaid for her family’s health care, and receives a subsidy for the day care center where she drops off Manny on her way to work.

With the recovery now well into its sixth year, stagnant wages have increasingly become the central economic issue and a political flash point.

A report issued last week by the Federal Reserve Bank of Cleveland said that labor’s share of overall income had fallen to record lows in recent years while profits have soared.

A handful of powerhouse companies have cited a tightening labor market as the reason behind recent wage increases, including McDonald’s, which recently announced a $1 bump over the local legal minimum for its corporate employees. (The announcement does not apply to the vast majority of McDonald’s employees, who work in franchises.)

Several economists, including the Nobel Prize winner Joseph E. Stiglitz, who has written extensively on inequality, credited political rather than competitive pressures for the decision by some larger fast-food and retail employers to raise wages.

William E. Spriggs, chief economist at the A.F.L.-C.I.O., said the McDonald’s announcement was “a response to worker campaigns to increase the minimum wage and what is going on in legislatures on the state and local levels.”

Denise Rush, a home health care worker in Durham, N.C., often works seven days a week, returning home near midnight after her two teenagers have already gone to bed. At $9.50 an hour, her biweekly paycheck totals just over $700, or the cost of her monthly rent. There is little left for other expenses.

“It’s a crazy dilemma,” she said. “Do I pay the whole bill or do I gas up the car to go to work?”

Despite receiving coverage for her children’s health care from Medicaid as well as about $300 a month in food stamps, Ms. Rush, 41, is still struggling. “We’re talking about basic needs,” she said, including such staples of modern life as a cellphone to keep in touch with work and her children and a home Internet connection to allow her children to do their homework.

Her paycheck also fails to pay for the uniforms and fees for the lacrosse, basketball and soccer teams that Ms. Rush says she believes are essential to keep her son and daughter occupied and out of trouble while she is working. Fortunately, she said, the school has helped pick up that tab.

About 48 percent of home health care workers are on public assistance, the Berkeley researchers found. So are 46 percent of child care workers and 52 percent of fast-food workers.

Even some of the nation’s best-educated workers have turned to taxpayers for support; a quarter of the families of part-time college faculty members are on public assistance, the Berkeley researchers found.

“I’m very proud of my doctorate, it was well-earned, but in terms of the work force, it’s a penalty,” said Wanda Brewer, who lives in Maywood, a Chicago suburb, and teaches at DeVry and Concordia colleges. She is paid $2,700 for each 15-week course she teaches. She and her 4-year-old daughter are both on Medicaid; they also receive $390 a month in food stamps and a child care subsidy.

She has applied for other jobs at chains like Walmart, Home Depot and Menard’s, but says she can’t even get a call back because such employers consider her overqualified.

“When I apply for anything outside education, they laugh at me,” Ms. Brewer said. “The term professor immediately commands respect. The assumption is you’re making a fair wage, a living wage, but that is not necessarily so.”