Why Are We Subsidizing Profits of Wealthy?

by Pablo Ros  |  February 17, 2016

Why Are We Subsidizing Profits of Wealthy?

It is no secret that Walmart pays its workers so little that many of them are forced to seek government assistance. That means taxpayers subsidize the earnings of America’s richest family to the tune of $7.8 billion a year.

But how widespread is this problem in our nation’s economy? A recent study by the Economic Policy Institute (EPI) provides this answer: More than half of low-wage workers receive some form of government-provided assistance, either directly or through a family member.

In “Balancing paychecks and public assistance: How higher wages would strengthen what government can do,” David Cooper of EPI writes that “for many workers in certain sectors, wages are so low that even those who work full time must rely heavily on government assistance to make ends meet.”

Workers in the arts, entertainment, recreation, accommodation, food services and retail trade industries are disproportionately represented among public assistance recipients. Giving the lowest-paid 30 percent of these workers an increase of just $1.17 an hour, on average, would reduce the number of people receiving public assistance by 1 million.

What’s more, for every $1 that wages rise among these workers, government spending on assistance programs falls by roughly $5.2 billion, according to the report. Cooper adds that such an estimate “is conservative, as it does not include the value of Medicaid benefits.”

If politicians could agree on setting a goal to raise the federal minimum wage to $12 an hour by 2020, this would reduce means-tested public assistance spending by $17 billion annually.

Employers get away with paying workers so little because of inadequate labor standards like a low minimum wage and outdated overtime regulations, the study points out. It’s likely that many of these workers also lack a voice on the job. But how do these employers get away with passing on the responsibility for providing a living wage to their employees to taxpayers?

It’s time to stop subsidizing the profits of the wealthiest 1 percent. Higher hourly wages for low- and middle-wage workers “would unambiguously generate savings in government safety-net and income-support programs,” the study states. Our country needs these savings, which could be used to boost productivity and grow the economy. 

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