Low wages don’t come cheap

When we think of the externalization of costs by capitalist enterprises, we think of environmental damage or infrastructure. But low wages are another burden foisted onto society, costing the public more than $150 billion annually in the United States.

So widespread have low wages become that a majority of federal and state money going toward public-assistance programs are paid to people who are part of a working family. This amounts to one more subsidy for U.S. business, already the recipients of massive largesse.

When it is impossible to live on meager wages — a position tens of millions of U.S. families find themselves in — there is no alternative to turning to public-assistance programs. The scale of this was calculated by researchers at the University of California Berkeley Center for Labor Research and Education, and released this month in their paper, “The High Public Cost of Low Wages.”

(Graphic by the Economic Policy Institute)

(Graphic by the Economic Policy Institute)

The authors of the report, Ken Jacobs, Ian Perry and Jenifer MacGillvary, examined the cost to the federal government and the 50 state governments for four programs — the Medicaid and Children’s Health Insurance Program, Temporary Aid to Needy Families, the Earned Income Tax Credit and the food stamps program (known formally as the Supplemental Nutrition Assistance Program, or SNAP). Almost three-quarters of those enrolling in at least one of these programs is a member of a working family, defined as a family with at least one member who works at least 10 hours a week for at least 27 weeks in a year.

Overall, $153 billion from these four programs goes to working families, representing 56 percent of total public-assistance spending by the federal and state governments.

This massive amount of public money represents a subsidy of corporations. The less they spend on wages and benefits, the more goes to profits, which are ultimately stuffed into the bloated bank accounts of corporate executives and financiers.

Fast-food workers, child care workers and home care workers are heavily represented among those who depend on public assistance to supplement their subpar wages — about half of all the employees in these three industries. That is no surprise. What might be surprising is the increasing prevalence of this in “white-collar” fields. Twenty-five percent of adjunct college professors receive public assistance! So much for “lack of education” as the cause of stagnant or falling wages, as right-wing apologists for growing inequality like to claim.

The Berkeley Center report broke down the public-assistance money by state, which reveals some interesting statistics. The state with the highest share of public-assistance money going to members of working families is none other than Texas. A full two-thirds of federal and state public-assistance money in that state goes to working families. Something to keep in mind next time you hear former Texas Governor Rick Perry, a past and possibly future presidential candidate, drone on about Texas creating more jobs than any other state. The official web site of the current Texas governor, tea party extremist Greg Abbott, brags about the state’s alleged plentiful “good jobs for hard-working Texans,” declaring that “It’s not bragging if it’s true.”

In reality, if so many Texans rely on food stamps and other government programs to survive, not too many of those jobs pay well. The tax system there is also regressive — Texas has no state income tax, but it has high sales and property taxes structured to disproportionately place the burden of taxes on the poor and middle class. The top 1 percent of Texans pay an effective tax rate of 3.2 percent, while a middle-income Texan pays taxes at a higher rate than a middle-income Californian, according to a Washington Monthly analysis.

(Graphic by Economic Policy Institute)

(Graphic by Economic Policy Institute)

It’s not only Texas, however, even if it is done on a larger scale there. Higher-paying jobs have been disappearing in the U.S., with the most growth since 2010 in low-wage jobs paying less than $13.33 an hour. At the same time, the number of people enduring long-term unemployment because of the weak economy has sharply risen in the U.S., Canada, European Union, Australia and New Zealand.

Given the increased harshness of employment practices, more families may be needing public assistance. A particularly brutal practice, “on-time scheduling,” has become so pervasive that New York State Attorney General Eric Schneiderman has launched an investigation into 13 retailers. This is a practice in which workers are told what shift to work with less than one day’s notice, making it impossible for them to make arrangements for personal and family needs.

A measure of how far backwards we have traveled is that the Obama administration is offering U.S. minimum-wage workers two-thirds of what was demanded 50 years ago. One of the demands of the March on Washington in 1963 was a minimum wage of $2 an hour. Adjusted for inflation, $2 an hour in 1963 would be worth $15.34 today. Yet the federal minimum wage in the United States is $7.25 an hour. So the $15 an hour campaign that has rapidly grown over the past year is agitating for nothing outlandish. Nor will $15 an hour for someone who supports a family lead to a life in luxury.

Raises most certainly can be afforded. U.S. corporations were sitting on about $5 trillion of cash as of 2011, a figure that undoubtedly has since grown. The massive hoards of cash, bloated salaries and bonuses for executives and financiers, and the starvation wages endured by so many all come with a cost — a cost borne by working people. There are not only no free lunches for working people, you are paying for the lunches and dinners of the wealthy besides your own lunch.

12 comments on “Low wages don’t come cheap

  1. Jeff Nguyen says:

    So let me get this straight. It’s ok for multinational corporations to take tax breaks, subsidies and exploit every loophole their $600/hr. lawyers can find but poor people who must rely on welfare to support their families on artificially low wages are the ones stigmatized and criminalized?

    Maybe it’s time to just have my paychecks direct deposited to Dimon or Blankfein’s accounts and they can give me my weekly allowance. It would save a lot of time and energy.

  2. If the current trend of worsening low wages, it will be the death of capitalism. Markets can’t function when people don’t have money to buy stuff.

    • Edward A. Hara says:

      Can’t come fast enough for me. Imagine all those corporate thugs having to face the prospect of doing real and actually work and getting a bowl of soup in the evening so they can live to slave another day. Priceless!

      • The worst punishment you could give plutocrats would be to make them work. They’d rather die. But, unfortunately for them, a better world will mean an end to the death penalty.

        • Edward A. Hara says:

          I am 66 years old, and probably won’t live to see the collapse, but if I am still around, I want to be one of the ones who gets to hold the shotgun and the whip while I watch the Wall Street gangsters and bank mafia dig ditches in ninety degree heat.

  3. backwardsevolution says:

    The insolvent banks should have been put into bankruptcy in 2008 (if they used mark to market, the Wall Street banks were all dead in the water), nationalized, split up into smaller banks (never to be allowed to get so large again), then sold off to other prudent lenders. Glass-Steagall should have been reinstated (let the bankers gamble with their own money and lose it if they want to). That’s what should have happened, along with many other important changes.

    Honest question – doesn’t raising the minimum wage just keep the elite game going? Here’s how I see it happening: everyone gets a raise (yes, it certainly wouldn’t make anyone rich, but it would definitely help), they’re more able to afford their mortgage, car and credit car payments, which would keep asset prices up, and then what happened in the past cranks up again (demand overtakes supply with all of the new money). People, who in a few years have more money, are now able to move up, consume more, prices start escalating, and pretty soon we’re back to where we started again – with people asking for a raise.

    As Einstein said: “Insanity: doing the same thing over and over again and expecting different results.”

    Come on, people! Shouldn’t we be addressing the cause rather than the effect? If you want to press for something to be done, shouldn’t you be pressing for an end to the constant inflation which is the cause of all of this? Bank creating money out of thin air is a form of counterfeiting. Every single time this happens, there is more money put into the system, thereby making our dollars worth less. There are excellent charts that show what your dollar used to buy compared to what it buys now.

    Let’s address the real problem. Instead of asking for a raise (which just sets the criminal financial cycle back in motion again and we’re poor again in a few year’s time), let’s let prices come back DOWN. That way you won’t need a raise.

    Asking for more money just keeps the banker game going over and over again. Are you not tired of this?

    • Intended or not, you have made an argument against Keynesianism, which some conservative critics say causes inflation and therefore is counter-productive. I’m not sure that is so, although it is a topic I would like to investigate more at some point. One the other hand, I think it would be difficult to argue to people struggling with low wages that they shouldn’t get a raise because prices will only rise.

      So let us get to the core argument you making, namely that an increase in the money supply causes inflation. That is not necessarily so, and in fact the Federal Reserve has pumped $4.1 trillion into the economy through three rounds of “quantitative easing.” That has inflated stock-market prices, but the U.S. has no real inflation. That is so because the U.S. remains the world’s reserve currency and the place that jittery speculators rush to park money when economic instability rears its head somewhere in the world.

      Japan also “prints money” through its own programs, and Japan has deflation; in fact, Japan tries unsuccessfully to achieve inflation. Japan’s debt is largely owned by Japan, so the country can run deficits at the same time its government bonds offer one of the world’s lowest yields. The European Union is also trying to kick-start inflation. Prices have been falling there as a result of austerity, and someone arguing that good times are at hand in Europe because prices are dropping would have a difficult time, to say the least.

      It isn’t realistic to make sweeping judgements about monetary policy; nobody today is Weimar Germany and in that imfamous case there is much evidence that there was an intentional policy of making the currency worthless because it was the interests of influential German industrialists. And of course there was the matter of the World War I reparation payments that were unrealistic. The problem ultimately is not this or that monetary policy; the problem is the misery, instability and inequality of the capitalist system. There will be no end to the problems you seek to address until humanity lives under a system designed to meet human need instead of private profit.

  4. backwardsevolution says:

    Systemic Disorder – thanks for your reply. You said, “So let us get to the core argument you making, namely that an increase in the money supply causes inflation. That is not necessarily so, and in fact the Federal Reserve has pumped $4.1 trillion into the economy through three rounds of “quantitative easing.” That has inflated stock-market prices, but the U.S. has no real inflation.”

    So if there has been no inflation, and only stock market prices have been inflating (and stocks are mainly held by the elite), then why would anyone need a raise? Are you saying there has been no increase in house prices, food prices? Of course there has. Food prices have been rising tremendously, and so have house prices, which just puts pressure on rents to increase as well. The Federal Reserve’s three rounds of QE is causing great inflation. They don’t measure it the way that Volcker did back in the 70’s and 80’s, but it’s there. They changed the way they measure inflation (excluding energy, food and house prices) precisely so they could hide the fact that we are being creamed by inflation.

    Inflation is happening because when you increase the money supply, you inflate prices (more money chasing fewer goods). Of course, most of this money has been given to banks and institutional investors (who borrow at next to nothing), then turn around and buy up assets, buy back their own stocks, pushing prices up. When someone works hard and sets a little money aside for their retirement, each and every single time more money gets put into the system, it dilutes what that guy has saved. So the borrower gets cheaper money and the workers get a raise (more money now chasing fewer goods), but the person who saved gets shafted. So it’s okay to shaft one person while benefiting another? How is this fair?

    I’m getting off track – sorry. You ask every person who is, in your words, “struggling with low wages,” why they’re struggling with low wages. It’s because there is stealth inflation, yet no one is talking about it.

  5. backwardsevolution says:

    I guess what I’m trying to say is raising wages and flooding the system with more money just papers over everyone’s losses (those who should have gone bankrupt) and we then continue on with the bankers’ game of more inflation (hidden by the ridiculously-calculated methods of the CPI). Soon, a few years maybe, those same workers will be back asking for a wage increase.

    If the government and the Fed were stopped from flooding the system with more money (which is the cause of all of our problems), prices would not be inflating and workers wouldn’t need to be asking for raises because prices wouldn’t be inflating (which is only an “effect” of the money flooding).

    If you stop the “cause,” you stop the “effect”. Do you want to go through this all again in a few years (which keeps happening over and over again, causing great hardship to families/children), or do you want to continue on with financial games of causing prices to rise in perpetuity?

    • Housing prices are indeed rising sharply and have done so for several decades. As a result, rents are increasingly unaffordable. It is also indisputable that the Federal Reserve’s quantitative easing has inflated asset bubbles. But that does not necessarily mean that QE equals rising housing costs.

      For one thing, the rise in housing prices (and thus rental properties) was in progress decades before the Fed’s post-2008 QE programs, even if prior Fed policies did contribute to earlier asset bubbles. Rising rental costs, and the gentrification that accompanies that, are products of landlord greed, neoliberal urban planning and growing inequality. Although we can lay many problems at the doorstep of the Fed, housing rentals and gentrification are products of capitalist market dynamics, not the Fed.

      Price inflation is the inevitable outcome of capitalist markets. Relentless competition requires not only innovation, but any and all means to maintain or increase profits. Cutting costs, including labor costs (thus stagnant or lower wages with work speedups), will always be a part of this picture, but raising prices when possible (sometimes through artificial scarcities) is another. Your raw materials supplier raises your costs, you are going to pass that on to your customer, and that will be reflected in what the consumer/end-user pays at retail.

      No monetary policy can or does touch that process; it is a basic function of an economy in which markets are allowed to reign supreme. You appear to me to be arguing for a steady-state economy, with stable prices. That is a worthwhile goal. But such an achievement is impossible under capitalism: competition alone makes instability inevitable. The lack of planning in capitalism — build and expand until the market is over-saturated followed by a retrenchment — means an equilibrium can never be found.

      An economy with planning, geared toward fulfilling human need rather than private profit, in which production is based on actual need through democratic input, would be able to be stable. We can call that socialism, or we can call it another name, or we can just refer to it as economic democracy. But without it, market dynamics dictates pricing. No monetary policy nor central bank can change that; at most they can somewhat influence conditions.

  6. […] Systemic Disorder, examines the findings of a recent study which suggests that many employers are relying on the government to compensate workers for income […]

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