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Study examines public cost of fast-food wages

The fast-food industry’s practice of paying low wages and providing few benefits is costing American taxpayers $7 billion a year in the form of public assistance, according to a new study from University of California, Berkeley and the University of Illinois. Fifty-two percent of families of fast-food workers are enrolled in one or more public assistance programs. That’s compared with 25 percent of the workforce as a whole.

“Fast food stands out for an extraordinary number of workers who rely on public assistance,” said Ken Jacobs, a co-author of the report.

The study comes as fast-food workers have been striking in cities across America over low wages and benefits. On Aug. 29, thousands of workers went on strike in fast-food establishments, demanding that starting salaries be more than doubled, from $7.25 an hour — the federal minimum wage — to $15 an hour. The Berkeley/Illinois study said that the combination of low wages and lack of benefits means that these “fast-food workers must rely on taxpayer-funded safety net programs to make ends meet.”

Relying on public assistance

Jacobs said that for fast-food workers, having to count on public assistance is “the rule rather than the exception.” The study, relying on publicly available data, found that the median wage for fast-food workers is $8.69 an hour. More than half used some sort of public assistance, including health insurance such as Medicaid, the Earned Income Tax Credit, food stamps or Temporary Assistance for Needy Families.

“The high participation rate of families of core fast-food workers in public programs can be attributed to three major factors: the industry’s low wages, low work hours and low benefits,” the study’s authors wrote.

The study only looked at “front-line fast-food workers,” meaning nonmanagerial employees who worked at least 11 hours per week for 27 or more weeks per year. The researchers found that the need to supplement income with public assistance was not limited to part-time workers. More than half the workers who worked 40 hours a week or more were on some kind of public assistance program.

One of the most surprising findings, Jacobs said, was the age distribution of fast-food workers. Sixty-eight percent of the workers were not in school and were single or married adults with or without children. More than two-thirds of the time, the wage made at the worker’s fast-food job was an “essential component” of the family income. “More of the workers are parents raising a child than teenagers living with parents,” Jacobs said.

The study drew criticism from industry groups who say that opportunities for advancement in the fast-food industry are plentiful and that raising wages would force employers to either increase prices or fire workers. The National Restaurant Association, a trade group, said in a statement that the study was misleading because it used “a very narrow lens and selective data.”

“America’s restaurant industry provides opportunities for millions of Americans, women and men from all backgrounds, to move up the ladder and succeed,” said Scott DeFife, the group’s executive vice president of policy and government affairs. “(T)he restaurant industry is one of the best paths to achieving the American dream.”

A great divide

In a companion study to the Berkeley/Illinois report, the National Employment Law Center highlighted the disparity between profits and executive pay at large fast-food corporations. The study found that the 10 largest fast-food companies — including heavyweights like McDonald’s, Subway and Burger King — cost taxpayers $3.8 billion per year and last year earned $7.44 billion in profits and paid $52.7 million to their highest-paid executives.

“Substantial public costs are driven by a relatively small number of large corporate chains,” said Jack Temple, the report’s author. “Companies operate on a business model that leaves workers unable to afford basic necessities and leaves taxpayers on the hook, but CEOs with billions. Low-wage fast-food jobs are expensive for all of us, whether or not you work in fast food or eat fast food.”

The report found that, for example, McDonald’s made up the largest chunk of cost to taxpayers at $1.2 billion. But in 2012, McDonald’s realized profits of $5.46 billion and paid its CEO, Donald Thompson, $13.7 million.

Devonte Yates, 21, who works 40 hours a week at a McDonald’s in Milwaukee, said that he doesn’t like having to rely on food stamps, but he has to to support his family. “The CEO makes more in a day than I do in a year,” Yates added. “If they paid workers more, we wouldn’t have to rely on public assistance. Taxpayers are picking up the slack where these companies are leaving off.”

It is unlikely the growing tension over worker pay is going away anytime soon, as the service industry is one of the fastest-growing industries in America, according to Sylvia Allegretto, co-author of the Berkeley/Illinois study. David Autor, an economist at MIT, found in a 2012 study that the share of the labor force in service occupations grew by 30 percent between 1980 and 2005 after having been flat or declining in the three prior decades.

“Corporate profits are at their highest and soaring and wages have stalled,” said Allegretto. “(The fast-food industry) is a small slice of a much bigger problem.”