We’ve talked quite a bit over the past several months about wage growth or, more appropriately, a lack thereof. The problem in the US is that for the 80% of workers the BLS classifies as “non-supervisory” (i.e. Hillary Clinton’s “everyday Americans [3]”), higher pay is proving to be a rather elusive [4] concept. The same cannot be said for America’s bosses however, who have seen their wages grow at a healthy pace [5]. We’ve also argued that this doesn’t bode well for the US economic “recovery” (which we’ve only been waiting on for six years) because when three quarters of workers are suffering under stagnant wages and when the engine that drives three quarters of economic output (consumer spending) is almost perfectly correlated [6] (0.93) with wage growth, you have a recipe for lackluster GDP prints and if the Atlanta Fed’s nowcast [7] is any indication, that’s just what we can expect going forward.
Another consequence of forcing America’s workforce to subsist on low paying jobs with little hope of pay hikes is that it puts extra pressure on the welfare state because if you can’t make ends meet on what you make you can either make more (which, as it turns out, is easier said than done) or turn to the government for assistance. According to a new report from UC Berkeley, nearly 75% of those receiving some form of public assistance come from working families, confirming that when it comes to straining the public purse, bad jobs may be a bigger problem than no jobs.
From UC Berkeley:
Even as the economy has at last begun to expand at a more rapid pace, growth in wages and benefits for most American workers has continued its decades-long stagnation. Real hourly wages of the median American worker were just 5 percent higher in 2013 than they were in 1979, while the wages of the bottom decile of earners were 5 percent lower in 2013 than in 1979. Trends since the early 2000s are even more pronounced. Inflation-adjusted wage growth from 2003 to 2013 was either flat or negative for the entire bottom 70 percent of the wage distribution. Compounding the problem of stagnating wages is the decline in employer provided health insurance, with the share of non-elderly Americans receiving insurance from an employer falling from 67 percent in 2003 to 58.4 percent in 2013.
Stagnating wages and decreased benefits are a problem not only for low-wage workers who increasingly cannot make ends meet, but also for the federal government as well as the 50 state governments that finance the public assistance programs many of these workers and their families turn to. Nearly three-quarters (73 percent) of enrollees in America’s major public support programs are members of working families; the taxpayers bear a significant portion of the hidden costs of low-wage work in America…
Overall, between 2009 and 2011 the federal government spent $226.8 billion (in 2013 dollars) annually on these programs, with 56 percent—that is, $127.8 billion—going to working families.
More than half (55 percent) of the federal Medicaid/ CHIP annual expenditures—$45.4 billion— went to workers and their dependents. Around one-quarter of federal TANF funds ($1.6 billion annually) were used to assist working families. Fully four-fifths (81 percent) of yearly EITC costs went to working families. The SNAP program cost $26.7 billion for working families, which is 38 percent of total federal expenditures on this program.
Overall, states collectively spent $25 billion annually between 2009 and 2011 to fund public assistance health programs and provide cash assistance to working families (see Table 3, page 4). This represented over half (52 percent) of total state-level funding for the two programs.
Per year the states collectively spent $43.9 billion on the health programs Medicaid and CHIP. Out of this, $23.8 billion—54 percent—was used to fund these health programs for members of working families. Looking at TANF, $1.2 billion (27 percent) of the $4.6 billion cash assistance provided by the states went to working families.
When jobs don’t pay enough, workers turn to public assistance in order to meet their basic needs. These programs provide vital support to millions of working families whose employers pay less than a liveable wage. At both the state and federal levels, more than half of total spending on the public assistance programs analyzed in this report—Medicaid/CHIP, TANF, EITC, and food stamps—goes to working families.
Higher wages and increases in employer-provided health insurance would result in significant Medicaid savings that states and the federal government could apply to other programs and priorities.
[8]
The irony here seems to be that because companies would rather spend their money on raises for "supervisors" and on stock buybacks which benefit the very same supervisory employees who are likey to own stocks (and which artificially inflate the bottom line), everyday taxpayers just like the ones who can't get a raise end up footing the bill via public assistance programs. The companies meanwhile, get to utilize nice little tricks like corporate tax inversions in order to avoid paying their share of the assistance handed out to the very same employees they underpay.
