Monday, October 28, 2013

Taxpayers subsidize low wages and high profits

According to Wal-Mart, over 50% of Wal-Mart's 1 million, full-time U.S. employees earn less than $25,000 per year. In other words, many of these employees, working full-time, do not earn enough to lift their family out of poverty. Consequently, Wal-Mart depends upon taxpayers to subsidize Wal-Mart by providing vital financial aid (e.g., SNAP, the renamed federal food stamp program) to Wal-Mart employees.

Public subsidies for Wal-Mart are expensive. For example, a new report from Democrats on the House of Representatives' Committee on Education and the Workforce "estimates that a single 300-person Wal-Mart Supercenter store in Wisconsin likely costs taxpayers at least $904,542 per year and could cost taxpayers up to $1,744,590 per year – about $5,815 per employee."

Wal-Mart's advertised low prices are thus deceptive. Consumers pay those low prices when they purchase an item. Then taxpayers pay, supplementing employee pay through various aid programs.

Changing minimum wage laws to require companies to pay living wages might marginally reduce employment but would represent a net gain for the economy, shifting the burden of paying employees from a government-business hybrid model to employers, where that responsibility belongs in a capitalist system. Living wages would also boost employee morale (better to be self-sufficient than on welfare!), making low-income jobs more attractive to U.S. citizens. This might, in turn, contribute to reducing the problem of illegal immigration.

Low wages are even more prevalent in fast food restaurants than in retail establishments:

The chart below presents the estimated cost to the government of subsidizing, through public assistance, low wages for about 52% of the employees at the 10 largest fast food companies:

The 10 companies generated $7.44 billion in profits, i.e., the companies would have been profitable even if they had paid their employees an extra $3.8 billion, the entire cost of the public assistance. The research included only Medicaid, the Children's Health Insurance Program (CHIP), the Earned Income Tax Credit, food stamps, and Temporary Assistance for Needy Families; if it included all government programs, such as child-care subsidies and reduced price school lunches, the total would be higher.

Substituting earned income through higher wages for welfare benefits employees, government, taxpayers, and even the employer (e.g., happier, higher paid employees are more likely to change jobs less often and to perform better). The average hourly wage for non-managerial, fast food employees is a miserly $8.69 according to a study by researchers at the University of California, Berkeley. Fast food workers are twice as likely to rely on public assistance as are employees in other industries.

The chair of the Senate Committee on Health, Education, Labor, and Pensions (HELP) reacted to the two reports in a statement to the press, describing the figures as “stark.”

“Anyone concerned about the federal deficit only needs to look at this report to understand a major source of the problem: multi-billion dollar companies that pay poverty wages and then rely on taxpayers to pick up the slack, to the tune of a quarter of a trillion dollars every year in the form of public assistance to working families,” said Sen. Tom Harkin (D-Iowa). “Seven billion of this is just for fast food workers, more than half of whom, even working full time, still must rely on programs like food stamps and Medicaid just to make ends meet.”

“In a nation as wealthy as the United States, no one who works hard for a living should live in poverty,” Harkin added. “Underpaying workers affects us all. These highly-profitable companies paying poverty wages should raise wages and listen to their workers’ demands to form a union. We should also increase the minimum wage, as I have proposed. These steps are not only the right thing to do for low-wage workers, but also the smart thing to do for the economy and for taxpayers.”

Low wages permit low prices, distorting the economy by creating an illusion that those who are not affluent live well through subsidized shopping at stores like Wal-Mart and dining at fast food restaurants.

1 comment:

Phyllis ZG said...

Unfortunately, current right-wing officeholders and the people who vote for them prefer the solution of eliminating government safety nets without a raise in minimum wages. Their thinking seems to be that if people are in a low-paying jobs, they must be too lazy to get the education and skills necessary to find employment that would allow them to live above a subsistence level. They seem to think that if enough of the working poor become homeless, it will motivate them "to find a real job" - and if the consequences of their failing to do so result in overwhelmed shelters, starvation, and death, it's their own fault. I weep for this country.