High Public Cost
The High Public Cost of Low Wages
MacGillvary, Perry, and Jacobs’ report, The High Public Cost of Low Wages, quantifies the burden that low-wage work imposes on U.S. taxpayers by examining how much federal and state governments spend on public assistance for working families. The study focuses on major programs including Medicaid, the Children’s Health Insurance Program (CHIP), the Earned Income Tax Credit (EITC), Temporary Assistance for Needy Families (TANF), and the Supplemental Nutrition Assistance Program (SNAP/food stamps).
Key Findings:
• Massive Public Cost: Between 2009 and 2011, federal and state governments spent a combined $152.8 billion annually on public assistance for working families. Of this, the federal government contributed $127.8 billion and the states $25 billion.
• Working Families as Primary Beneficiaries: Nearly three-quarters (73%) of enrollees in the major public support programs are members of working families—defined as families with at least one member working 27 or more weeks per year and at least 10 hours per week.
• Stagnant Wages and Declining Benefits: Real wage growth for most American workers has been flat or negative for decades, with the bottom 70% of the wage distribution seeing no real gains between 2003 and 2013. At the same time, employer-provided health insurance coverage has declined, exacerbating reliance on public assistance.
• State-by-State Impact: The states with the highest annual public assistance costs for working families are California ($3.7 billion), New York ($3.3 billion), Texas ($2.1 billion), Illinois ($1.1 billion), and Florida ($1.0 billion). In several states, over 60% of public assistance funds go to working families.
• Program-Specific Spending: More than half (56%) of combined state and federal spending on Medicaid/CHIP, TANF, EITC, and SNAP goes to working families.
Policy Implications:
• Hidden Subsidy for Low-Wage Employers: The report argues that low-wage employers effectively shift labor costs onto taxpayers, as public assistance programs subsidize workers’ basic needs.
• Potential Savings from Higher Wages: Raising wages and increasing employer-provided health insurance would significantly reduce public assistance expenditures. For example, Medicaid savings could be redirected to other priorities, and federal spending on EITC and SNAP would decrease.
• Broader Benefits: Reducing reliance on public assistance through higher wages would allow governments to better target tax dollars and potentially expand services like child care, job training, and transportation assistance.
Conclusion
The report concludes that low wages not only harm workers but also create a substantial and ongoing cost for taxpayers. Addressing low pay through higher wages and better benefits would alleviate this public burden and improve economic security for millions of working families.
MacGillvary, Perry, and Jacobs, “The High Public Cost of Low Wages,” UC Berkeley Labor Center. https://laborcenter.berkeley.edu/pdf/2015/the-high-public-cost-of-low-
Prosper Georgetown is a 501(c) 3 non-profit organization certified under File Number 803442241
by the Office of the Secretary of State for the State of Texas, dated 10/10/2019.