Study Details Public Cost of Low Wages

Taxpayers are subsidizing California’s growing low-wage economy to the tune of $10 billion a year through public health services, tax credits, child-care programs and other assistance for the working poor, according to a UC Berkeley study to be released today.

The report, by the school’s Center for Labor Research and Education, found that nearly half the money from the 10 largest statewide public assistance programs went to families with at least one full-time worker.

If paid more, the workers would be self-sufficient and would not qualify for the programs, the report states.

Such “hidden costs” of low-wage work are likely to increase unless the government intervenes to raise wages and benefits at the lowest end of the economy, the report says. Currently, low-wage jobs are growing faster than the overall economy in California.

“What those employers are doing is shifting labor costs onto the public,” said Carol Zabin, lead author of the report, produced for the National Economic Development and Law Center, based in Oakland. “We’re kind of encouraging the Wal-Martization of the economy.”

Los Angeles County was the epicenter of the trend, Zabin said, accounting for half of the subsidies cited. The largest sector by far was retail trade, followed by business services.

The growth of California’s low-wage economy has been well documented, but its effect and policy implications are hotly debated. The UC Berkeley report recommends raising the minimum wage to at least $8 an hour from the current $6.75, mandating employer-provided health insurance and boosting worker skills and productivity through training and development.

Business groups, including the California Chamber of Commerce, oppose raising the minimum wage and are working to repeal SB2, a labor-backed state law that would require employers to provide affordable health insurance to workers.

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., agreed that the rise of low-wage jobs was a problem but argued that government mandates that raise business costs were the wrong solution.

“You’ve got to be careful,” he said, adding that many middle-class jobs have left California because of high business costs. “Some of these solutions might be worse than the problem we’re trying to fix.”

For example, he said, raising wages for retail workers could encourage greater use of automatic check-out stands, eliminating some jobs altogether. Kyser also took issue with the study’s depiction of the federal earned income tax credit, which goes to very-low-wage workers, as a subsidy. “This is a tax benefit,” he said.

The tax credit accounted for about a fourth of subsidies described in the report. The largest single subsidy came from Medi-Cal, the state’s health insurance program for the poor, accounting for 35% of the $10 billion. Zabin said the report undercounted the public expense of low-wage work because it didn’t consider county costs, such as the use of hospital emergency rooms by uninsured workers.

In some cases, the link between low-wage jobs and public expense is clear. Take the case of Stella Anguiano, a janitor who cleans a Los Angeles County health clinic in Palmdale through a private contractor. Anguiano, who earns $8.35 an hour after 10 years on the job, has employer-provided health insurance, but it covers only her and her husband and pays for only three doctor visits a year. Her four children, ages 2 to 15, are on Medi-Cal.

She and other co-workers are lobbying the county Board of Supervisors to raise its living-wage standard, which the contractor is obliged to pay. Her dream, she said, is health insurance for the whole family.

“Who wouldn’t like to have their kids covered by a good plan?” she said. “No one wants to go to the county for help.”