New Study: Low Wages Cost Taxpayers Big

by Bud Meyers, published April 20, 2015

From another new study, this time from the UC Berkeley Center for Labor Research and Education (April 2015) “Poverty-Level Wages Cost U.S. Taxpayers $152.8 Billion Each Year  in Public Support for Working Families”

They report that wages of the bottom decile of earners were 5 percent lower in 2013 than in 1979. Trends since the early 2000s are even more pronounced. Inflation-adjusted wage growth from 2003 to 2013 was either flat or negative for the entire bottom 70 percent of the wage distribution … 73 percent of enrollees in America’s major public support programs* are members of working families; and the taxpayers bear a significant portion of the hidden costs of low-wage work in America.

* Medicaid, Children’s Health Insurance Program (CHIP), Temporary Aid to Needy Families (TANF aka “welfare”) and Supplemental Nutrition Assistance Program (SNAP aka “food stamps”).

Between 2009 and 2011 the federal government spent $127.8 billion per year on these four programs for working families; and the states collectively spent $25 billion per year for a total of $152.8 billion per year. In all, more than 56 percent of combined state and federal spending on public assistance goes to working families.

Overall, higher wages and employer-provided health care would lower both state and federal public assistance costs, and allow all levels of government to better target how their tax dollars are used.

* But the GOP is against higher wages and employer-provided health care; while at the same time, wants to lower taxes to force cuts in these programs (aka “Starve the Beast”). So instead of just punishing the unemployed, the GOP wants to punish working people too. We’re damned if we do (work for low wages) and damned if we don’t (work at all).

From Arindrajit Dube (Associate Professor of Economics, UMass Amherst) on this new study:

“If we fund redistribution via taxes and transfers, and it’s paid for by wealthy taxpayers, that’s no worse than funding it via reduced profits going to wealthy investors … There is also an efficiency argument for paying people via wages rather than public assistance … Existing research suggests it may be more costly to transfer money from the rich to the poor using tax policies [rather than paying higher wages]. .. These public assistance programs have become de-facto subsidies for low-wage employers. For a program to be a subsidy for an employer, it needs to lower wages … A balanced portfolio will both include policies that raise wages (like minimum wage policies), as well as robust safety net programs. Minimum wage policies tend to lower the use of public assistance like food stamps … [But] when work hours are limited, using wages alone to raise incomes is more difficult, and that’s one reason we have safety net programs.”

And a new study from the NBER: “Underemployment and hidden unemployment currently account for the bulk of the U.S. employment gap … Using state-level data, we find strong statistical evidence that each of these forms of labor market slack exerts significant downward pressure on nominal wages.” (Here’s the open link to the 25-page wonkish study (by David G. Blanchflower and Andrew T. Levin — March 24, 2015)

Comment from Mark Thoma’s blog:

Yet more indication of failed Fed policies. The United States has one of the lowest labor participation rates in the developed world, but still manages to stay above basket cases like Greece, Spain and Ireland.

The rich are getting positively obese from the Fed’s policy, but after six years it has yet to trickle down to ordinary Americans. To make matters worse (from Reuters):  “A forecast model from the Federal Reserve of Atlanta on Wednesday suggested the U.S. economy is barely growing in the first quarter following an unexpectedly steep 1.4 percent drop in durable goods orders in February.”

When you run a policy for six years and its primary effect is to redistribute income upwards at the expense of the vast majority of Americans, isn’t it finally time for the Fed to step aside, admit its ineffectiveness, and define an effective policy for politicians to implement?

In the reader comments (again, at Mark Thoma’s blog) refuting a study, “How Immigrants and Job Mobility Help Low-Skilled Workers”, they call robots the next wave of immigration — and one reader commented:

So the Danish citizens originally working in lower skill and wage jobs would have (absent immigrants coming in) just continued in those low wage jobs, in spite of their latent ability to move up to higher wage jobs. And I suppose those higher wage jobs would have gone empty as well. They were being held back by what, exactly?

“Well, we’d like to hire Hans for that empty network administrator slot we’ve been trying to fill, but he’s tied up with his current job collecting trash. Guess we’ll just have to struggle on.”

Having better “skills” won’t help most of us either. New York Times: “The Machines are Coming” (great article) — Machines aren’t always used because they perform some tasks much better than humans, but because, in many cases, they do a “good enough” job — while also being cheaper, more predictable and easier to control than quirky, pesky humans. Technology in the workplace is as much about power and control as it is about productivity and efficiency. This used to be spoken about more openly. An ad in 1967 for an automated accounting system urged companies to replace humans with automated systems that “can’t quit, forget or get pregnant.”

Other links…

Quote of the Week (by Tom Nides, a Hillary Clinton confidant —> and Morgan Stanley vice chairman): “She’s been an advocate for these issues of economic equality, fairness and playing by the rules for her whole career.” (Am I the only one who found a banker defending Hillary on inequality rather odd?)–election.html 

Sen. Marco Rubio (R-Fla.) said Sunday that he sees little or no difference between Clinton and what he called the failed ideas of President Obama. He said he would be a better leader than either of them. (What exactly were Obama’s “failed ideas”? The record corporate profits and stock market gains? The Republicans never say.) 

Congressional Republicans are divided on whether to push forward with an overhaul of Medicare long championed by Rep. Paul Ryan (R-Wis.). The House budget includes Ryan’s proposal to convert Medicare into a premium support system in 2024, giving new beneficiaries the option of enrolling in private insurance. (The GOPers in the House and Senate are debating by “how much” they want to screw us.) 

If you don’t want to get mired in the wording and details of the TPP’s fast track bill, here is a shortcut to deciding if you are for it or against it: The GOP, big businesses, lobbyists, and the rich are FOR the trade deal; the Democrats, labor unions, working-class Americans and everyone else are against it.) 

How Ron Wyden became the left’s scourge on trade (More on TPP) 

Sens. Ted Cruz (R-Texas) and Rand Paul (R-Ky.) have both floated an across-the-board tax rate as they’ve launched their 2016 presidential bids. (Again: The GOPers in the House and Senate are debating by “how much” they want to screw us.)