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Public Aid and Low Pay

Thursday, May 20, 2004

Nearly half of the $21.2 billion that California pays in public assistance goes to families whose working members earn too little to be self- supporting, according to a study to be issued today by the UC Berkeley Center for Labor Research and Education .

Economist Carol Zabin, co-author of the study, "The Hidden Public Costs of Low-Wage Jobs in California," called the $10.1 billion in public assistance paid to low-income families a subsidy for their employers.

"What's going on in the economy is that low-wage employers are shifting their labor costs to the public,'' said Zabin.

The study, which the authors called the first comprehensive look at how much public assistance goes to working families in California, examined 10 state and federal programs including Medi-Cal, welfare, the Earned Income Tax Credit, child care assistance and Section 8 housing vouchers.

The authors found that families in which at least one person worked all year collected $10.1 billion in assistance. They calculated that taxpayers could reduce public assistance costs by $2.7 billion if the hourly minimum wage were raised from $6.75 to $8. In addition, public payouts would fall $2.1 billion if working families on assistance had access to health insurance through their employers.

The study by the Berkeley group, which often works closely with organized labor, comes at a time when the Legislature is considering a minimum wage boost backed by labor groups. Meanwhile, business leaders are funding a ballot fight in November hoping to repeal a new law designed to compel many California employers to offer health insurance.

David Neumark, an economist with the Public Policy Institute of California who is an opponent of mandated benefits and wages, faulted the Berkeley researchers for failing to estimate how many jobs employers might eliminate if wage increases and mandated benefits raised the cost of entry- level labor. He said teenagers from middle-income families hold many minimum- wage jobs, making increases less efficient than other policies, like the earned income tax credit, to help the working poor.

Neumark said he was "not surprised" that the Berkeley researchers found so many working families getting assistance because recent state and federal welfare reforms have sought to make the poor work. "These (public assistance) policies are ways of saying, 'How do we put more money into the hands of working families,' '' he said.

In February, the California Labor Federation sponsored AB2832 to raise the minimum wage to $7.25 in January and to $7.75 in January 2006. The bill, awaiting action in the Assembly, says "California's minimum wage is the lowest on the West Coast,'' lagging Oregon's rate of $6.90 and Washington's $7.01.

The increase is opposed by the California Chamber of Commerce, which is backing the referendum to repeal the mandate that certain employers offer health care insurance.

"The California economy is just starting on the road to recovery,'' said chamber spokeswoman Sara Lee, adding that new employer mandates "is not the way to keep that going.''

But the authors of the Berkeley study say the state must get more sophisticated about job creation and address the fact that there are entire industries, notably retail and food service, in which wages and benefits may be too low to support a family.

"In California's economic development policies, when you're looking for what kind of jobs to promote, the quality of jobs matter,'' said study co- author Ken Jacobs.

Key findings

Working families (those with at least one member employed 45 or more weeks per year) received 48 percent of state and federal assistance.

-- Three-quarters of these working families had full-time wage earners.

-- Working families in retail and food-service industries collected about $2 billion in public assistance, far exceeding workers in sectors such as manufacturing, construction, hospitality or agriculture.

Source: UC Berkeley Center for Labor Research and Education

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