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Center for Labor Research and Education

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When Work Doesn’t Pay: The Hidden Cost of Low-Wage Jobs in Wisconsin

Center on Wisconsin Strategy
UC Berkeley Center for Labor Research and Education

  • Executive Summary

    Wisconsin’s economy is built on a strong foundation: strong employers that offer good jobs and benefits; a strong labor force with good skills and work ethic; and, importantly, a strong set of public programs to provide a safety net for those who need it. Unfortunately, increasing evidence suggests that our system is out of balance. Some employers may be increasingly taking advantage of Wisconsin’s strong safety net–using publicly funded assistance programs as a private subsidy.

    This report takes a closer look at the “hidden public costs” of low wage jobs. These costs are both hidden and public because the community directly and indirectly pays in order to fill in the gap between what work pays and what families need. We look specifically at the programs on which low-income working families most heavily rely: Medical Assistance (from BadgerCare, Medicaid, and State Child Health Insurance Program (S-CHIP)); Wisconsin Shares child care subsidies; Food Stamps; the Earned Income Tax Credit (EITC); and Temporary Assistance to Needy Families (TANF).

    Findings

    Using survey and administrative data, we construct a picture of the families in the state that are receiving support from the support programs mentioned above. These programs are significant in size and critical to families that participate in them: total state and federal costs of these six programs amount to nearly $1.85 billion annually in Wisconsin, providing critical support to some 400,000 families in the state. Given this background, we look carefully at the families participating in these programs with consistent-commitment to work. The disturbing facts:

    Hard, consistent work does not always pay enough or provide health insurance for families.

    Of the $1.85 billion spent on programs, fully 45 percent of this money–$837 million–goes to year-round working families. Despite these families’ commitment to work, they must rely on the state to make ends meet. By far the most important and expensive support to year-round working families is medical assistance which accounts for 38 percent of this money. When workers cannot rely on employer provided health insurance, they turn when they can to the state for medical assistance. Employer provided health insurance is in decline, which means that the medical assistance costs of low-wage jobs will continue to grow.

    Lower wage jobs mean higher costs for the public.

    More than half of the year-round working families enrolled in these support programs earn $10 per hour or less. In industries where wages are low, rates of employer-provided health insurance tend to be low as well. As a result, the share of workers enrolled in public support programs is high.

    Jobs taking care of others generate high public costs.

    The health care sector has the highest number of workers receiving public benefits. Of the $837 million spent annually on public benefits for year-round working Wisconsin families, $187 million, or 22 percent, is directed to workers in the health care industry. Health care is one of the largest industries in the state, accounting for 11 percent of all workers. Its very size helps to explain the high costs it generates.

    Within health care, workers in the nursing homes and residential care sub-sector are clearly most reliant on public programs. These workers are three times more likely to receive public assistance than those in doctors’ offices and clinics, and account for half of all public benefits spending of the health care industry. One in four residential care workers are enrolled in public support programs; more than half of all residential care workers do not receive health insurance through their jobs.

    The social service sector (including child care services, services to the homeless, etc.) generates costs that are most out of scale with the size of the industry. While the sector accounts for only 2.1 percent of Wisconsin jobs, it accounts for 4.5 percent of working families that rely on public benefits.

    The irony is as obvious as it is bitter: the very industries committed to taking care of others–hands on health care and social services–offer wages and benefits so low that their workers must often rely on public help to make ends meet.

    The retail industry generates high public costs.

    Given its large size and low wages, retail comes in as the industry generating the second highest public cost in the state. Benefits standards are eroding in the sector leaving more workers to rely on Medicaid or to simply do without any health insurance.

    An Agenda for Stronger Jobs

    These high public costs underscore the need for leaders across the state to continue to build a stronger, high wage, high job quality, high road economy. Job quality is enhanced by building upon the strengths of the economy. Importantly, job quality also requires ensuring that the floor under the labor market is strong. Wisconsin can do more to close off the low-road of economic competition which generates such high public costs.

    Raise and strengthen the labor market floor

    At the state level, a strong minimum wage is part of the solution. Wisconsin’s recent increase to $6.50 per hour is a good start, but inflation is already eroding its value. Already 10 states, including six that passed increases on the November ballot, index their minimum wage to inflation. Wisconsin should consider joining these states.

    We should increase resources devoted to enforcing wage and hour standards across the state. Most employers operate well above reasonable and legal standards, but some bad actors routinely violate the law. When essential labor standards are overlooked or violated for any workers, labor standards are weakened for many workers. District Attorneys, community organizations, workers’ centers and other local and state leaders can actively support job quality by devoting resources to enforcing standards.

    Another way to strengthen our basic labor standards is to make it easier to identify employers that chronically violate them. The state should shine a spotlight on chronic violators by gathering publicly-available data on violations of occupational safety and health, wage and hour, and labor law. An on-line database could bring more attention to violators, providing important data for businesses, governments, or individuals, and providing extra incentive to keep worksites legal.

    put job quality first in state and local economic development

    At all levels of government, from local to the state, elected and administrative leaders should focus more strongly on building stronger job quality. For example, local political and community leaders should consider carefully job and benefits standards in Tax Incremental Financing (TIF) and other economic development schemes.

    State grants, tax credits, and other supports should support the creation and viability of jobs which provide a decent standard of wages and benefits. State leaders should carefully consider wage and benefit quality when extending grants, loans, training or other supports. And the state should follow up to make sure that promised wage and benefit standards are being met.

    Focus purchasing power on job quality

    Public sector purchasing power should also enforce and support job quality in the state. As the public sector seeks competitive bids for the provision of services, We should pay careful attention to the job quality offered by prospective providers. A low bid from a provider who’s workers are likely to end up on Medicaid may actually cost the state more than a higher bid from an employer offering better jobs. Further, the state should never contract with chronic violators of basic labor law.

    At the local level, living wage laws require that government service contracts go only to firms which pay workers at a specific level. These policies prevent the use of taxpayer dollars to subsidize poverty jobs.

    Level the playing field for firms that offer affordable health care

    Probably the clearest conclusion from this report is that the state needs to continue to develop a plan for comprehensive health care reform. Too few low-wage workers get health insurance through employers and too many increasingly rely on medical assistance from the state, or go without health insurance, which can also prove costly.

    But it is also obvious from this report that the state solution on health care must affirm the contributions of employers that already work hard to provide insurance and find ways to recoup costs generated by employers that do not do so. It should not be possible for companies to undercut their competitors in price simply because they do not provide adequate health insurance and thus externalize their health care costs. Comprehensive health care reform must take this dynamic into account.

    Improve the quality of care work

    Care work presents a clear economic and moral challenge in the state: the work of caring for our very old and very young often pays so little that those who do it must rely on the state for health insurance and other supports. This problem is not unique to the state, but it requires our attention. Leaders in the state should seek to ensure decent wages and benefits for care providers. This is good for the workers, but also good for their frail, young, or old clients.

    At the local level, non-profit community service funders should start the hard discussion about the quality of jobs that their direct service providers offer. Local service providers should both document and begin to explore options for increasing wages and benefits for the hands-on care workers in our communities.


  • Press Release

    Low-Wage Jobs Hold Hidden Costs for State

    Hardworking Families Rely on Medical Assistance and other Support

    178,000 Wisconsin families that earn low wages still need public assistance even though they are working all year round. The federal and state costs of programs to support these workers are substantial: $837 million per year.

    A new report from the Center on Wisconsin Strategy (COWS), When Work Doesn’t Pay, takes a close look at the “hidden public costs” of low wage jobs. The report shows that through five important programs, Medical Assistance (from BadgerCare, Medicaid, and the State Child Health Insurance Program (S-CHIP)); Wisconsin Shares child care subsidies; Food Stamps; the Earned Income Tax Credit (EITC); and Temporary Assistance to Needy Families (TANF), the public pays to fill in the gap between what work pays and what families need. The report also shows that some employers may be increasingly taking advantage of Wisconsin’s strong safety
    net—using publicly funded assistance programs, especially medical assistance, as essentially a private subsidy.

    Hard, consistent work does not always pay enough or provide health insurance to sustain a family.

    Of the $1.85 billion spent on public support programs, 45 percent—$837 million—supports year-round working families. Despite these families’ commitment to work, they must rely on the state to make ends meet. By far the most important and expensive support to year-round working families is medical assistance ($315 million). With employer provided health insurance in decline, the medical assistance costs of low-wage jobs will continue to grow.

    Lower wage jobs mean higher costs for the public.

    More than half of the year-round working families enrolled Wisconsin assistance programs earn less than $10 per hour. The gap between what families earn and need is exacerbated by industries that both pay low wages and do not provide health insurance. In these low wage/low benefit industries, workers rely especially on state provided health insurance.

    Health care, retail and social service sectors all generate high public costs.

    The health care sector has the highest number of workers receiving public benefits. Of the $837 million spent annually on public benefits for year-round working Wisconsin families, $187 million, or 22 percent, is spent on workers in the health care industry.

    Within health care, the residential care subsector contributes the overwhelming majority of these costs. More than one-in-four of residential care workers receives public support and the subsector alone accounts for $94 million of the total public expense.

    The retail sector generates the second highest public cost in the state. Workers in this sector account for $75 million of the public expense.

    Finally, the social service sector generates costs that are most out of scale with the size of the industry. While the sector accounts for only 2.1 percent of Wisconsin jobs, it accounts for 4.5 percent of working families that rely on public benefits.

    “The irony of the high costs in health care and social services is obvious and bitter,” says report author Laura Dresser. “The very workers committed to taking care of others have wages and
    benefits so low that they must rely on public programs to help make ends meet.”

    Building Policy Supports for Higher Job Quality
    The report concludes that Wisconsin can do more to close off low wage, low benefit, low job quality economic competition which generates such high public costs by:

      • Raising and strengthening the wage floor by continuing to increase the minimum wage by indexing it to inflation, increasing resources devoted to enforcing wage standards at the
        state and local level, and making it easier to identify employers who chronically violate those standards.
      • Focusing on job quality in state and local economic development by including a careful examination of job and benefit standards when considering economic development deals.
      • Leveraging public purchasing power to build job quality by considering wage and benefit standards at competing companies.
      • Leveling the playing field for firms that offer affordable health care by affirming the contributions of employers that already work hard to provide insurance and finding ways to recoup costs generated by employers that do not. Companies should not be able to undercut their competitors by reducing employee benefits and relying on the state to pick up the tab.
      • Improving the quality of care work by ensuring decent wages and benefits for the care providers in the system. This is good for the workers, but also good for their frail, young, or
        old clients. At the local level, the non-profit community should start the hard discussion about the quality of jobs that their direct service providers offer.