Low Wages and the Hidden Cost to Taxpayers

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Speaking on a CNNMoney panel on inequality in September, Berkley professor and former Secretary of Labor Robert Reich highlighted the lopsided spread of wealth in the United States with this factoid: “The 400 richest people in the United States have more wealth than the bottom 150 million put together.”

If this degree of inequality seems gross, buckle up, because it’s getting worse. In 2012, median household income in the U.S. was $51,017 per year, down from $51,100 in 2011 and 8.3 percent below where it was in 2007 before the financial crisis brought the American economy to its knees. In 2010, headline unemployment hit 10 percent and the poverty rate (as measured by the U.S. Census Bureau) peaked at a recent high of 15.1 percent, a level from which it has hardly fallen.

Meanwhile, according to a report from the University of California Berkley, those incomes at the top 1 percent of earners increased 31.4 percent between 2009 and 2012, compared to just 0.4 percent among the bottom 99 percent (this factoid was surely a slogan of the Occupy movement.) As much as 95 percent of all income gains made from 2009 to 2012 were made at the top 1 percent of the earning population.

Inequality is, of course, one of the many by-products of capitalism. Profit motive and income incentives are fundamental for innovation and economic growth, and no one is arguing that the basic structure should be scrapped. However, as income inequality grows worse in the world’s wealthiest nation, the tone of the conversation has been changing — becoming increasingly vehement over the past few years during an anemic economic recovery.

The debate generally coalesces around the gap between the minimum wage and the so-called living wage. At $7.25 per hour, the minimum wage in the U.S. is generally believed to yield a full-time income high enough for even a single adult to feasibly live on. This argument has been vocalized by organizations such as the Fight for 15, Fast Food Forward, and others, largely consisting of fast-food and retail employees of large companies such as McDonald’s (NYSE:MCD) and Wal-Mart (NYSE:WMT).

The full scope of the conversation surrounding the minimum- and living-wage debate is too enormous to fit into anything smaller than an encyclopedia, but UC Berkley recently released a report that adds an interesting piece of information to the mix.

The report finds that 52 percent of the families whose income-earners work in front-line fast-food jobs (cashiers, cooks, etc.) are enrolled in one or more public assistance programs, a rate nearly double the national average. This enrollment figure is so high because “many of them work in jobs that pay wages so low that their paychecks do not generate enough income to provide for life’s basic necessities.”

UC Berkley estimates that the annual cost of this public assistance is $7 billion, mostly ($3.9 billion) in Medicaid and Children’s Health Insurance Program spending. Another $1.04 billion is spent on food stamps, and $1.91 billion in Earned Income Tax Credit payments.

“One in five families with a member holding a fast-food job has an income below the poverty line,” finds the report, “and 43 percent have an income two times the federal poverty level or less.”

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