Could Minimum Wage Increase Save Taxpayers Billions On Welfare?

By Rachel Martin | PA Independent

Taxpayers are on the hook for billions each year in welfare to working families. That’s one message organizers of the “Fight for 15” campaign are trying to drive home.

“I shouldn’t have to be on welfare, when I work my ass off,” Ashona Osborne, participant at a rally in Pittsburgh last week, told PAIndependent.com.

Taxpayers shouldn’t have to pay for her to be on welfare, either. In fact, big corporations like fast food chains are taking advantage of the welfare system to justify paying their employees less than they would otherwise be able to, Osborne argues.

That’s an idea that gets at something not often discussed in the national debate over hiking the minimum wage: Maybe it’s not just companies versus workers, or government versus companies. Maybe taxpayers are a vital part of the equation, paying to support both halves of an unhealthy relationship that has exploded onto the streets in the past year.

And it’s expensive.

A new study from UC Berkeley Center for Labor Research and Education says taxpayers pay $153 billion a year in benefits to families where at least one person works. If those programs didn’t exist, companies would have no choice but to pay workers more, in theory.

That corporate welfare argument doesn’t fly with everyone.

Nathan Benefield, vice president of policy analysis at the Commonwealth Foundation, a self-described free-market think tank, disagrees that the billions in welfare paid are actually a subsidy to companies or that a higher minimum wage is the answer to poverty.

“It’s a poor policy to address what I agree is a problem,” he said.

Benefield said policies that might encourage higher wages would certainly help mitigate the need for public assistance. He said it’s a broad discussion, but should include policies to make businesses more competitive.

“Money doesn’t come flowing down, like manna from heaven,” he said.

Osborne, 23 years old and mother of a 5-year-old son, got food stamps and cash assistance even when working full-time.

After working at McDonald’s for a year and a half, Osborne did not get a raise above her starting wage of $7.25 — even though the district manager promoted her to crew trainer.  At Wendy’s, later, over the course of her year there, she also didn’t make more than $7.25, though she was similarly promoted.

Osborne doesn’t come from a union background and certainly had never considered herself an activist. She got interested in Fight for 15 when she worked at McDonald’s and an organizer broke down the 2012 salary of the McDonald’s CEO.

Don Thompson, now the former CEO — though he’s still going to be paid $3 million as a consultant this year — had a $13.8 million compensation package.

Osborne said she got involved in organizing, but not at her own store. Management got wind of it and retaliated, she said. They cut her hours from 40 to around 15 and began having her do maintenance shifts for the first time.

“They had me moving milkshake machines and dusting the ceiling,” Osborne said.

Then management sat the whole crew down to tell them how much they didn’t need a union, she said. The general manager wagged his finger toward Osborne in particular and said, “You’d better be thankful you have a job,” Osborne claimed.

“After that, I got fired up with the organizing,” she said.

Last May, more than a hundred people, including McDonald’s workers and clergy, were arrested at a McDonald’s shareholder meeting. Osborne had never been arrested before, but she is proud of that one: “I was number 88.”

For the seeming retaliation of cutting her hours, Osborne filed a complaint with the National Labor Relations Board and won.

Osborne then worked at Wendy’s for a year, and she continued with Fight for 15. Last September, she was one of eight arrested in the Pittsburgh area on a day of national protests and strikes in which at least 159 and perhaps as many as 436 were arrested, issued citations or detained.

There are millions of Americans like Osborne and they get billions in public benefits every year. Would that be necessary if they were paid higher wages?

The Berkeley study examined payouts through four major types of programs funded by the federal and state governments: Medicaid and the Children’s Health Insurance Program, cash assistance, food stamps (technically Supplemental Nutrition Assistance Program) and the Earned Income Tax Credit.

Each year, taxpayers spend $153 billion just for working families — 56 percent of all such spending. The total cost is likely even higher, as the report didn’t include child-care or housing assistance programs, among others.

Whether or not such benefits can be called a subsidy to companies, workers earning low wages looks to be an expensive proposition for taxpayers.

As of May 2014, the U.S. Bureau of Labor Statistics put the number of “fast food and counter workers” at 2.8 million, with an average wage of $8.89 — less than $19,000 a year.

Just taking a very basic look at food stamps eligibility shows how wage increases might save mountains of taxpayer money.

Using the current basic eligibility formula without digging too far into the many income deductions, full-time minimum-wage workers easily qualify. So do people making the average fast-food wage of $8.89, even if they’re only supporting themselves.

Two studies out last year support this premise, though both are from organizations viewed as left-leaning. Last March, the Center for American Progress concluded increasing the minimum wage to even $10.10 would save taxpayers nearly $4.6 billion per year on food stamp benefits alone.

In October, the Economic Policy Institute analyzed a wide variety of programs, and found that with a $10.10 wage, 1.7 million workers wouldn’t need to rely on government assistance, and the government could reduce spending on those programs by $7.6 billion a year.

Progressives tend to ignore the other consequences of raising the minimum wage, which can include higher unemployment, particularly among young and inexperienced workers, and faster inflation.

Employers may also raise prices or shrink their work forces to balance out higher mandatory wages, Benefield said.

The Congressional Budget Office, analyzing proposals to increase the minimum wage to either $9 or $10.10 an hour, concluded last February it’s likely that increases might result in job reductions for up to half a million workers.

It also concluded it would benefit 16.5 million and “once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion.”