RELEASE: The Public Cost of a Low Federal Minimum Wage

UC Berkeley Labor Center

For Immediate Release
January 14, 2021
Contact: Van Nguyen, (415) 506-8054
vann@berkeley.edu

Study: Low wages cost taxpayers $107 billion a year

Half of working families who would receive pay increases under $15 minimum wage bill are enrolled in public safety net programs 

Berkeley, CA – A new report by the UC Berkeley Labor Center highlights just how much the nation’s workers and other taxpayers have to gain with a $15 minimum wage.

The study finds that nationally, the families of close to half the workers who would benefit from the Raise the Wage Act are enrolled in a public safety net program because their jobs don’t pay enough to make ends meet – at an annual cost of $107 billion in public funds. In addition to improving the lives of low-wage workers and their families, the higher minimum wage would reduce costs for the safety net programs that low-wage workers turn to when their jobs don’t pay enough.

The federal minimum wage has been $7.25/hour since 2009 – the longest-ever period without an increase. In July of 2019, the U.S. House of Representatives passed the Raise the Wage Act, which would phase in a $15 federal minimum wage by 2025. The bill had stalled under a Republican-led Senate, but could now prevail with support from the incoming Senate, President and Vice President.

“When restaurants, retailers and other employers pay low wages, workers need public safety net programs to make sure they have health care and enough to eat. The Raise the Wage Act would help workers make ends meet and take some pressure off state governments,” said Ken Jacobs, chair of the UC Berkeley Labor Center. “Particularly as we look at recovery from pandemic-related unemployment and recessions, it’s critical we are able to target these public funds appropriately for maximum community benefit.”

Atlanta McDonald’s worker Melissa Sconiers and her children are on Medicaid because they can’t afford the insurance McDonald’s offers on her $9/hour salary. “I sometimes help out at the homeless shelter and I see so many families struggling in the pandemic, losing their jobs and then their homes,” Sconiers said. “Meanwhile companies like McDonald’s and Amazon make more money than ever. It’s not right.”

Study details and findings:

  • Almost half of the affected working families (47%) are enrolled in at least one safety net program to bridge the gap between their wages and the cost of supporting a family.
  • Forty-two percent of dollars spent on safety net programs go to working families who would get a raise from the Raise the Wage Act, at a cost of $107 billion.
  • Nearly three-quarters (74%) of the families of homecare workers who would receive an increase under the Act are enrolled in at least one safety net program, as are 71 percent of fast-food workers’ families and 55 percent of childcare workers’ families.
  • The report examines utilizations of the five of the largest means-tested safety net programs: Medicaid; Children’s Health Insurance Program (CHIP); basic household income assistance under Temporary Aid for Needy Families (TANF); Earned Income Tax Credit (EITC); and Supplemental Nutrition Assistance Program (SNAP).
  • Researchers focused on “affected working families,” defined as a family where at least one member worked at least 10 hours a week for 45 weeks and would receive a direct pay increase under the Raise the Wage Act.
  • The report includes estimates for each of the 42 states that have not already passed a $15 minimum wage.

“Our research shows just how important this legislation is to low-wage families and all of us who are contributing to and counting on safety net programs to help families stay healthy,” said Jacobs. “When we require that employers pass more of the money workers earn on to them through a higher minimum wage, it will have a significant positive impact on the workers, their families, and the entire community.”

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The UC Berkeley Center for Labor Research and Education (Labor Center) is a public service project of the Institute for Research on Labor and Employment (IRLE) at UC Berkeley.