Taxpayers Are Supporting Working Families

New Study Shows 73% of the Safety Net Goes to Working Families

Taxpayers Are Supporting Working Families
April 30, 2015

Proponents of a higher national minimum wage make the argument that it is impossible to raise a family on low-paying jobs. A recent study by the University of California-Berkeley seems to back up that assertion.

The study found that almost three-quarters (73%) of the federal safety net of poverty programs is used by working families — in essence, the working poor. Using data from the Department of Labor's Current Population survey and administrative data from the assistance agencies, the study concluded that safety net assistance costs taxpayers approximately $152.8 billion annually (in 2013 dollars). The federal share was $127.8 billion with the rest absorbed by state programs.

The safety net included the following sources of assistance: Medicaid and the Children's Health Insurance Program (CHIP), Temporary Aid to Needy Families (TANF), the Supplemental Nutritional Assistance Program (SNAP, aka food stamps), and the Earned Income Tax Credit (EITC). To be classified as a working family, at least one family member had to work at least ten hours per week for 27 weeks of the year.

The study authors note that real wages at the lower-income levels have actually declined or stayed flat for lower-income workers for some time, thus more working families need assistance. When accounting for inflation, wage growth was non-existent for the lower 70% of wage earners from 2003-2013, and actually decreased in some cases. Current economic data shows stagnant wages as a problem without an obvious end in sight.

Combine this data with the amount of underemployment (part-time workers who would prefer to be full-time and full-time workers working at jobs below their skill level) and the study results are not surprising.

Is any single program responsible for more assistance to the working poor than others? The EITC certainly is, with 81% of the EITC funds distributed to working families. That is as it should be, since the EITC was designed specifically to aid the working poor. Medicaid and CHIP funds were allotted at 55% to the working poor, SNAP funds at 38%, and TANF funds at 25%.

Geography does not play an obvious role. The working families' share of the federal safety net varied randomly throughout the fifty states from a low of 44% in Alaska to 67% in Texas.

In short, the study shows how dependent the working poor are on safety net benefits, implying that wage stagnation at the lower levels of the economy is a pervasive problem. However, the situation may really be even worse. Not all childcare subsidies are included, nor are the effects of the Affordable Care Act and Medicaid expansions (the data was not available at the time). It will be interesting to see if this study is used as a baseline to gauge the effect of the ACA and Medicaid expansions on the working poor (by either program advocates or opponents).

What do we do about this problem as a nation? The study concludes higher wages and greater employer-provided health insurance is necessary. While the current administration agrees with higher wages, the ACA is actually moving in the other direction to decouple health insurance from employment — subtly providing more public assistance in the health care system.

We do not have the answers, but we know one thing for sure — taxpayers will be paying a larger portion of this support one way or the other. Either we pay it directly through our taxes and government support, or we pay it indirectly through higher prices and services that result from higher wages.

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