Fast-Food Workers Are Costing the U.S. $7 Billion a Year in Public Aid

  • Share
  • Read Later
Getty Images

Those cheap fast-food prices conceal a huge hidden cost—even if you never pull into a drive-thru. New studies by the University of Illinois, University of California, Berkeley, and the National Employment Law Project find that taxpayer-funded safety net programs effectively subsidize fast food workers’ low wages. 

Researchers say roughly 2.3 million non-managerial employees at the 10 largest fast-food companies in the United States cost taxpayers an estimated $3.8 billion per year in safety-net benefits. When you add in the families of these workers — 68% of workers are the primary wage earners in their family — the numbers balloon to almost nearly $7 billion per year. Reliance on public assistance is “the rule rather than the exception for fast-food jobs,” says University of California Berkeley’s Center for Labor Research and Education chair Ken Jacobs, even for those who work 40 hours or more a week.

(MORE: Fast Food Strikes Go Viral: Workers Expected to Protest Low Wages in 35 Cities Thursday)

More than half of families are enrolled in one or more of public safety-net programs, including Medicaid, food stamps, the earned income tax credit, and the Children’s Health Insurance Program. Jacobs says the real number is probably higher, since the research doesn’t include WIC, subsidized housing or school lunches, home heating assistance or state programs.

Researchers say a combination of factors create this situation. “The high participation rate of families of core fast-food workers in public programs can be attributed to three major factors: the industry’s low wages, low work hours and low benefits,” the UC Berkeley/U. Illinois report says. The average front-line employee at a fast-food restaurant earns $8.69 an hour, and only 13% of these workers are estimated to have health insurance through their jobs.

This combination of low pay and limited work hours yields an average annual salary of only $11,056.14. And while it’s certainly true that some people flipping burgers and taking drive-thru orders are teenagers, that report finds that only 18% are under the age of 18 and living with their parents. Even when you includes minors who don’t live with their parents and college kids living at home, the total adds up to just under a third of all fast food workers.

(MOREFast Food Strikes: Unable to Unionize, Workers Borrow Tactics From ‘Occupy’)

Of course, fast food companies aren’t the only ones that rely on minimum- and low-wage workers; big-box retailers like Wal-Mart have also come under fire for what they pay employees. But researchers found that 44 percent of restaurant and food service workers were enrolled in one or more assistance programs, the highest of any industry. On a media call, Jacobs said researchers were surprised that such a huge percentage of workers needed this assistance just to stay afloat.

For the vast majority of these workers, there’s little hope they’ll ever move up the socioeconomic ladder and escape this cycle of poverty and dependency. A previous study by the National Employment Law Project found that only 2% of fast-food jobs are managerial, professional or technical, in contrast to more than 30% of jobs in the American labor market overall that fall in this cateory.

14 comments
msnyc10
msnyc10

Gotta love the news; first they report on how Fast Food Industry is ';costing taxpayers $7 billion a year' because of the wages they page their workers. Then when they are done they say the Fast Food Industry enjoys a profit of.. $7 billion a year.  Can anyone else dig through this hyperbole? I mean why isn't it that all the people who create a demand for and demand fast cheap food 'cost the taxpayer $7 billion a year'


So option 1 is: The Fast Food Industry eliminates the $7 Billion they are 'costing us' by eliminating their profits and pay that money to the workers instead.


Option 2 is they raise the price of their products enough to generate an additional $7 Billion. Not only will this drive sales down and require even higher raises in the price of the 'fast food', it will STILL 'cost' taxpayers $7 billion dollars a year.


See how it works?

spookiewriter
spookiewriter

Like every other business, fast food profits are a bit hard to pin down. However, the industry is being a bit disingenuous when it claims it can't support higher wages. 

In college I did a paper on the fast food industry and discovered a few things. Part of the paper tracked 5 new franchisees who began by building the first location from scratch. They had to raise between 1 and 5 million dollars to finance the first location. All 5 were able to pay off the loans (app. 70% of the total cost) within 1 year of operation.

Then they all added additional locations at the rate of 1 per year. Again, all the costs to build these locations were repaid within months. All of these franchisees own at least 6 locations with 3 of them continuing to expand.

This means they are making money. 3 of the owners allowed me to see the hard cost (using real wage figures instead of burdened) of 1 location for a year. Without getting into all the details, the NET profit from these stores was around 28%.

Many of these companies rely on cheap labor and expect a huge turnaround in employees. These get hammered with much larger labor expenditures than the ones who hire cheap labor and when they find a good employee, rapidly expand their pay rate and benefits. These stores on average spend 20 -30% less in payroll costs as get as a much higher quality and loyalty from their staffs. So many companies fail to see that a high turnover is basically flushing profit down the toilet.

All of what I said was condensed and simplified from my 587 page paper, however other studies have also found that by reducing turnover and rewarding good employees, most labor intensive business can increase the bottom line by a substantial amount. It's just too bad that most fast food operations just play lazy and just staff with the lowest common denominator.

failureofreality
failureofreality

Its not just fast-food restaurants.  Colleges and Universities also employ many low paid part-time workers called adjunct professors.  The person teaching a college level class in economics or English literature may be receiving food stamps because he/she receives poverty wages.  Our country has become a place where the many are exploited to benefit the few.

TheBestBanker
TheBestBanker

Each of McDonald's CEOs in the last few years have seen over 200% raises year over year. There are companies that exist that do not spoil their CEO's and in fact do spread out the pay a bit more evenly. The result is a fair paid employee who does not rely on government services as much. People do not want free stuff. People want to pay for their own things through working hard, and receiving a fair wage. 

milton.recht
milton.recht

The article has got it backwards. The fast food industry is saving the government money by employing people who are on government benefits. If the fast food industry paid a higher wage, it would employ fewer people, hire workers with more skills and education and invest in more automation. Rasing the fast food industry wage would increase rthe number of people on government benfits and increase the cost to the government. 

jdr20000
jdr20000

And how is this different from convenient store workers, nannies, day-laborers, aspiring rappers, illegal immigrant farm workers, landscapers, and of course, those who don't work at all.  We'll all paying for them, too :(

jerkstoreclerk
jerkstoreclerk

@msnyc10 Yes I can see how an oversimplified, econ101 view of this issue would lead you to conclusions which are not based in reality, but frankly I'm not sure why you'd want to post it where people can see it.


There are numerous studies which show that your "options" are not even close to accurate, and no I'm not going to google them for you.

tom.litton
tom.litton

@failureofreality And also Ameri-core.  

People who dedicate their lives to supporting and helping others should at least be able to support themselves.

GloriaA.McCullough
GloriaA.McCullough

@failureofreality My thoughts exactly--it has been 12 years since any adjunct at Gloucester Community College got a raise!  And the president said we "were the lifeblood of the college".

bryanfred1
bryanfred1

@TheBestBanker McDonald's CEO makes $8.75 million.  The company has 760,000 U.S. employees (1.8 million globally).  So if he were to forego his compensation completely American employees could have a whopping $11.51 raise - for the year.  If spread to all countries, it would be $4.86.  I understand the emotion behind such statements but the math doesn't support the thesis that CEO pay prevents lower-level employees from earning more.

tom.litton
tom.litton

@milton.recht The solution is obvious.  Couple the min wage increase with retraining so the people that will loose their jobs to robots will get better ones building and maintaining those robots.

tom.litton
tom.litton

@jdr20000 Yes, but this is the biggest contributor, so it's the place to start. 

Besides, if you raise the min wage, then it effects all of those jobs too. 

Actually pretty much anything you do should be done across the entire US, and not just one industry.

bryanfred1
bryanfred1

@tom.litton @jdr20000 The market price for a hamberger can be only so much.  Increase the minimum wage above the market wage in this industry and employment will go down.  The question is whether you want more people working at a lower wage or fewer working at a higher wage. 

tom.litton
tom.litton

@bryanfred1 @tom.litton @jdr20000 Not really true.  The economic studies that look at this are all over the map, but generally show only a slight or no job loss. 

Increasing their wages injects a large amount of money in the system, which offsets any job losses that happen.