Americans are Spending $153 Billion a Year to Subsidize McDonald's and Wal-Mart's Low Wage Workers; Is $15 an Hour a Realistic Goal for Fast-Food Workers?
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Author: Ken Jacobs; Eric Morath
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Americans are Spending $153 Billion a Year to Subsidize McDonald's and Wal-Mart's Low Wage Workers

By Ken Jacobs
April 15, 2015
Washington Post

How the minimum wage hurts us all.

The low wages paid by businesses, including some of the largest and most profitable companies in the U.S. - like McDonald's and Wal-Mart - are costing taxpayers nearly $153 billion a year.

After decades of wage cuts and health benefit rollbacks, more than half of all state and federal spending on public assistance programs goes to working families who need food stamps, Medicaid, or other support to meet basic needs. Let that sink in - American taxpayers are subsidizing people who work - most of them full-time  (in some case more than full-time) because businesses do not pay a living wage.

Workers like Terrence Wise, a 35-year-old father who works part-time at McDonald's and Burger King in Kansas City, Mo., and his fiancée Myosha Johnson, a home care worker, are among millions of families in the U.S. who work an average of 38 hours per week but still rely on public assistance. Wise is paid $8.50 an hour at his McDonald's job and $9 an hour at Burger King. Johnson is paid just above $10 an hour, even after a decade in her field. Wise and Johnson together rely on $240 a month in food stamps to feed their three kids, a cost borne by taxpayers.

The problem of low wages and the accompanying public cost extends far beyond the fast-food industry. Forty-eight percent of home care workers rely on public assistance. In child care, it's 46 percent. Among part-time college faculty-some of the most highly educated workers in the country-it's 25 percent.

Ebony Hughes is paid $7.50 an hour as a home care worker in Durham, N.C., and has a second job at a local KFC. While the home care industry has the fastest growing number of jobs in America, these workers are some of the lowest paid in the country - earning, on average, $13,000 a year. To get enough hours to pay the bills, Hughes works from 6 a.m. to 11 p.m. But she and her daughter still rely on public assistance to make ends meet.

UC Berkeley's Center for Labor Research and Education, which I chair, has analyzed state spending for Medicaid/Children's Health Insurance Program and Temporary Assistance for Needy Families, and federal spending for those programs as well as food stamps and the Earned Income Tax Credit.

We found that, on average, 52 percent of state public assistance spending supports working families (defined as working for at least 26 weeks a year and 10 hours a week) - with costs as high as $3.7 billion in California, $3.3 billion in New York, and $2 billion in Texas.

In recent months, the substantial public cost of low wages has prompted elected officials to take action. Legislators in California, Colorado, Maine, Oregon, and Washington are considering increasing the minimum wage to $12 an hour. In Connecticut, a proposal currently moving through the state legislature would fine large companies that pay low wages in an effort to recoup the costs imposed on taxpayers.

When 73 percent of people who benefit from major public assistance programs live in a working family, our economy isn't operating the way it should - and could - be. From 2003-2013, inflation-adjusted wages fell for the entire bottom 70 percent of the workforce. Over the same time period we have also seen a large decline in the share of Americans with job-based health coverage.

When 73 percent of people who benefit from major public assistance programs live in a working family, our economy isn't operating the way it should - and could - be. From 2003-2013, inflation-adjusted wages fell for the entire bottom 70 percent of the workforce. Over the same time period we have also seen a large decline in the share of Americans with job-based health coverage.

The events were organized by the union-backed Fight for $15 campaign, which is demanding that McDonald's Corp. and other fast-food chains raise their minimum wages to $15 and let workers unionize.
Photographer Joe Raedle/Getty Images // Bloomberg Business

Today - on Tax Day - underpaid workers are striking and protesting in cities across the country and around the globe to call for $15 an hour and the right to form a union. Their success would increase family incomes for tens of millions of adjunct professors, fast-food, home care and child care workers, among other underpaid workers. Raising wages would also generate significant savings to state and federal  governments, and allow them to better target how our tax dollars are used.

Public assistance programs provide a vital support system for American families. But when Americans like Wise, Johnson and Hughes are working as hard as they can and are still paid too little to get by without public support,  we need action to raise wages. On Tax Day it is a good time to take a hard look at the high public cost of low wages in the United States.

[Ken Jacobs is the Chair of the UC Berkeley Center for Labor Research and Education and co-author, with Jenifer MacGillvary and Ian Perry, of "The High Public Cost of Low Wages."]

Is $15 an Hour a Realistic Goal for Fast-Food Workers?

By Eric Morath

April 15, 2015
Wall Street Journal

Wal-Mart employee David Coulombe participates in a rally seeking a $15 an hour minimum wage in Boston as part of nationwide Fight for $15 events.
Credit: Bryan Snyder/Reuters // Wall Street Journal

Fast-food workers in dozens of cities are rallying Wednesday, demanding a $15 hourly wage for their work.

They're joined in some cases by home-care aides, retail clerks and other low-wage workers who often earn closer to the federal minimum wage of $7.25 an hour than their stated goal.

But is $15 an hour a realistic demand?

At first blush, it seems a real stretch.

Source: U.S. Labor Department //

A $15 an hour federal pay floor would represent a 107% increase in the minimum wage. The largest-ever one-time increase to the minimum wage was 88%. That occurred in 1951 when the federal minimum jumped to 75 cents an hour from 40 cents.

The last minimum-wage increase, phased in over three years through 2009, was a 41% increase to the current rate from $5.15 an hour.

At $15 an hour, protesters are also demanding a 57% increase from the $9.53 an hour wage a non-manager, fast-food worker averaged in February.

Source: U.S. Labor Department //

To put that in perspective, it took 18 years for fast-food workers to see a similar percentage from the $6.10 an hour they earned at the start of 1998, according to the Labor Department.

So who currently makes $15 an hour?

In 2014, brickmasons earned an average wage of $15.12 an hour, according to the Labor Department. Pharmacy technicians averaged $14.95 an hour, and various categories of assemblers and production workers-typical factory jobs-earned between $14.78 and $15.25 an hour. Each of those jobs would generally require more skill and training that an entry-level position at a restaurant.

If all workers earned at least $15 an hour, there would be a ripple effect through hundreds of occupations. Some workers would likely see raises. Others could lose their jobs to automation or overseas competitors.

The nonpartisan Congressional Budget Office estimated an increase in the minimum wage to $10.10 an hour would cost the U.S. about 500,000 jobs. Many economists believe the impact of $15 an hour would be much larger.

And while restaurant workers wages are rising faster than pay increases in the broader economy, wage gains have generally been muted. Average hourly earnings for all workers was $24.86 last month, up a mild 2.1% from a year earlier.

But there are several reasons that $15 an hour may not be such a reach.

San Francisco, Seattle and the airport suburb of SeaTac, Wash., have already established minimum wages of $15 an hour, though it will take a few years to reach that rate in the larger cities.

If lawmakers and voters in those places view $15 as a living wage, other cities could soon follow.

Source: National Employment Law Center /

The cost of living in Seattle is about 21% higher than the rest of the country, according to the Census Bureau.

But a number of large cities are similarly as expensive, including Baltimore, Boston, Chicago and San Diego. And Seattle is a comparative deal versus Los Angeles, New York and Washington.

Some, including Chicago and Washington, have established higher minimum wages, but lawmakers there stopped short of $15 an hour.

There is also clear momentum for a higher minimum wage at the state level. Less than half of states still follow the federal wage. Last year, 14 states acted to raise their minimum wages, with Massachusetts setting the nation's highest rate at $11 an hour by 2017.

Source: National Conference of State Legislatures /

Several more states, including Colorado, New York and Oregon, are considering changes to their pay-floor laws. A proposed ballot initiative in Oregon would seek to raise that state's minimum wage to $15 an hour by 2018, from the current $9.25 an hour rate.

Beyond law changes, large employers, including McDonalds, Wal-Mart and Target have all pledged to increase starting pay for workers to well above the federal minimum wage.

While promises to lift workers to $10 an hour is far short of the $15 goal, it suggests the federal mandate is no longer sufficient to attract workers even for the lowest-skilled jobs.

Other companies have already established pay floors above $15 an hour.

The health insurance company Aetna Inc. said in January that it would raise wages for its lowest-paid employees to at least $16 an hour.

Gravity Payments, a credit card processing company in Seattle, announced this week that it would pay all its workers at least $70,000 annually, which breaks down to about $35 an hour.

[Eric Morath covers the economy from The Wall Street Journal's Washington Bureau. He reports on major economic data and the Federal Reserve, Treasury and Commerce departments.]

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