Reports: Fast food's low-wage business model comes with supersized public costs

Wages in the highly profitable fast food industry are so low that more than half of families of front-line fast food workers are enrolled in and depend on public assistance programs to make ends meet. In other words, that seemingly inexpensive burger and fries not only comes with a secret sauce, but a secret cost.

According to "Fast Food, Poverty Wages: The Public Cost of Low-Wage Jobs in the Fast Food Industry," which was released last week, the cost of such public assistance is nearly $7 billion every year, with Medicaid and Children's Health Insurance Program costs accounting for more than half. In fact, the restaurant and service industry is the leader — by a significant margin — when it comes to the share of workers with a family member enrolled in a public assistance program. The report, authored by researchers at the University of Illinois at Urbana-Champaign and the University of California-Berkeley, put the industry's share at 44 percent, which is 9 percentage points higher than the next highest sector, agriculture, forestry and fisheries.

"I think workers in general and especially low-wage workers are falling further and further behind," said economist Sylvia Allegretto, an author of the report and co-chair of Berkeley's Center on Wage and Employment Dynamics. "They're making less than their low-wage counterparts 50 years ago...They simply can't get by on what they're getting and it's gotten worse since the Great Recession."

Allegretto — along with co-authors Marc Doussard, Dave Graham-Squire, Ken Jacobs, Dan Thompson and Jeremy Thompson — reports that fast food workers are more likely to live in or near poverty, with more than 40 percent of families with a member working in fast food reporting an income two times the federal poverty level or less. And even fast food workers employed full time aren't making enough to survive on — more than half of the families of full-time workers participate in public assistance programs such as the Supplemental Nutrition Assistance Program (formerly known as food stamps) and Temporary Assistance for Needy Families. The percentage of families of fast food workers enrolled in public assistance programs is more than double the overall workforce rate.

"The public ends up padding the bottom lines of these very profitable corporations," Allegretto told me.

The report attributes the high public assistance rate to three main factors within the fast food industry: low hours, low benefits and low wages. Median wage for a nonmanagerial fast food worker is $8.69, less than $1.50 more than the federal minimum wage. The authors also note:

The popular notion is that fast-food workers are generally teenagers living at home with their parents. Analyzing the core workforce, those working at least 27 weeks per year and 10 hours or more per week, provides a very different picture. The share of these workers who are under the age of 19 and living with a parent (18 percent) is smaller than the share with children of their own (26 percent). Overall, 68 percent of the core front-line workers in the fast-food industry are not in school and are single or married adults with or without children. For more than two-thirds of these workers, fast-food wages are an essential component of family income.

And fast food workers aren't taking the current wage situation lying down. This year has seen a nationwide wave of fast food worker walk-outs and protests to call for better wages and working conditions (learn more about the movement at Fast Food Forward). In discussing the recent surge in fast food worker organizing and mobilization, Allegretto said that "workers are tired of opening up the paper and reading that corporate profits are through the roof and that Wall Street is booming. They're feeling that this (economic) divide is bigger than ever and they're right...because what they're feeling really does bear out in the data." She noted that since the U.S. economy began growing again in 2009, 95 percent of the gains have gone to the top one percent.

Of course, calls for living wages are usually met with the typical industry lines: they can't afford it, they'll have to lay off workers or raise prices, etc. ("When do they ever say they can afford it," Allegretto said. "Even in the 90s when the economy was booming they didn't want a minimum wage increase. They don't want it in good times, they don't want it in bad times — they just don't want it.") However, another recent report on fast food wages finds that the industry's finances are quite healthy. According to the National Employment Law Project (NELP) report "Super-Sizing Public Costs: How Low Wages at Top Fast-Food Chains Leave Taxpayers Footing the Bill," the seven publicly-traded firms among the 10 largest fast food companies raked in $7.44 billion in profits in 2012. But the industry's woeful wages and benefits mean public dollars are basically subsidizing fast food profits — the 10 largest U.S. fast food companies cost taxpayers about $3.8 billion every year in public assistance for their workers.

"Whether you work in fast food or eat at fast food, we're all affected by this low-wage business model," said Tsedeye Gebreselassie, a staff attorney at NELP, who added that many fast food workers also experience wage theft (more on that here). "It's especially unconscionable given the enormous profits these companies are making."

Gebreselassie told me that addressing this wage issue is especially urgent, as the restaurant and service industries are among the fastest growing sectors in the economy — "these are jobs that can't be off-shored," she said. The solutions? Organizing and policy change.

"First we need to raise the wage floor to a more robust and realistic level and beyond that workers need the right to come together and bargain to create better working conditions for themselves," Gebreselassie said.

Allegretto agreed, noting that these fast food companies aren't breaking the law, "which is why we need stronger policies."

"We're the richest, largest economy in the world and we could do things differently," she said. "Right now, this is not an economy that's working for most of the people in it."

To download a full copy of the report Allegretto co-authored, click here. For a copy of the NELP report, click here. And for a more in-depth look at one city's fight for better wages, read our coverage of and interviews with fast food workers in St. Louis.

Kim Krisberg is a freelance public health writer living in Austin, Texas, and has been writing about public health for more than a decade.

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