Low wages cost taxpayers $153 billion a year

"When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs," says Ken Jacobs. (Credit: evelynishere/Flickr)

Persistent low wages cost US taxpayers approximately $153 billion every year in public support to working families, according to a new report that details, for the first time, the state-by-state costs.

Following decades of wage cuts and health benefits rollbacks, more than half of all state and federal spending on public assistance programs (56 percent) now goes to working families, researchers say.

“When companies pay too little for workers to provide for their families, workers rely on public assistance programs to meet their basic needs,” says Ken Jacobs, chair of the Center for Labor Research and Education at University of California, Berkeley, and coauthor of the report. “This creates significant cost to the states.”

Big spenders

The report analyzed state spending for Medicaid/Children’s Health Insurance Program and Temporary Aid to Needy Families (TANF), and federal spending for those programs and food stamps (SNAP) and the Earned Income Tax Credit (EITC).

The study also reports that:

  • On average, 52 percent of state public assistance spending supports working families, with costs as high as $3.7 billion in California, $3.3 billion in New York, and $2 billion in Texas.
  • Reliance on public assistance can be found among workers in a diverse range of occupations, including frontline fast-food workers (52 percent), childcare workers (46 percent), home care workers (48 percent), and part-time college faculty (25 percent).

From 2003 to 2013, wage growth remained flat or negative for the entire bottom 70 percent of workers in the United States, Jacobs says. Over the same time, the share of non-elderly Americans receiving health insurance from an employer fell almost 10 percentage points, from 67 percent to 58 percent.

Far behind inflation

Despite modest pay raises at some of the country’s largest and most profitable employers, including Walmart and McDonald’s, wages continue to lag far behind inflation.

Raising wages would result in significant savings to state and federal governments, the researchers say. In recent months, the substantial cost of low wages has prompted elected officials to take action.

California, Colorado, Maine, Oregon, and Washington are considering increasing the minimum wage to $12 or higher. In Connecticut, a proposal currently moving through the state legislature would fine large companies that pay low wages in an effort to recoup the cost these companies impose on taxpayers.


The Congressional Democrats’ fiscal year 2016 budget proposal unveiled last month included a provision that would roll back tax breaks for large companies that fail to raise pay on pace with inflation.

“Our public-assistance programs provide a vital support system for American families. Raising wages would lift working families out of poverty and allow all levels of government to better target how our tax dollars are used,” Jacobs says.

Funding was provided by the Service Employees International Union.

Source: UC Berkeley