Fast food restaurants bilk taxpayers for billions? Oh, please

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  • .@NelpNews study is either slander on fast food industry or wholesale indictment of welfare state. Take your pick.

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  • Even if Sonic ran at a loss — it could not free itself from @NELPNews assertions that the chain is bilking taxpayers

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  • .@NELPNews study is designed for press coverage but shows how discussion of public policy issues distracts rather than informs

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According to a new study from the left-leaning National Employment Law Project, government benefits such as Food Stamps and the Earned Income Tax Credit have driven down the wages of low-skilled Americans and added not a penny to their standard of living. At least, that's what you must believe in order to accept NELP's claim that "low wages at top fast-food chains leave taxpayers footing the bill" for billions in government benefits.

At the same time, a campaign by Fast Food Forward, a joint project of the Service Employees International Union and the New York branch of ACORN (now renamed as New York Communities for Change), has highlighted low wages paid in the fast food industry, arguing that restaurants - voluntarily or otherwise - should pay employees at least $15 per hour.

But now the like-minded National Employment Law Project has opened a second front, ostensibly in defense of taxpayers. NELP has a new headline-generating report claiming that "Taxpayers are shelling out $1.2 billion a year to help pay workers at McDonald's." Overall, they state "the low-wage business model at the 10 largest fast-food companies in the United States costs taxpayers more than $3.8 billion each year." Low fast food pay, the NELP logic goes, causes employees to become eligible for taxpayer-funded benefits such as Food Stamps and the Earned Income Tax Credit. If fast food chains paid a living wage, NELP argues, taxpayers would save billions.

The NELP study raises some legitimately interesting empirical questions regarding how wages change in the presence of government benefits. But depending upon how you answer these questions, the NELP study is either a slander on the fast food industry or a wholesale indictment of the welfare state. Take your pick.

One possibility is that fast food chains pay the same wages regardless of the government benefits their employees may qualify for. This doesn't seem unreasonable, given that fast food establishments paid low wages even before government benefits were prevalent. Moreover, in some cases — such as the restaurant chain Sonic — restaurant employees receive government benefits far exceeding the chain's own profits. Even if Sonic ran as a non-profit — or at a loss — it could not free itself from NELP's assertions that the chain is bilking taxpayers.

In this case, the fast food-bilks-the-taxpayer allegation is simply false and all the data surrounding it is meaningless. If the government chooses to supplement the wages of low-skilled workers, it cannot then turn around and accuse those workers' employers of fleecing the government.

Alternately, it is possible that fast food employers are able to "capture" part of the federal benefits paid to their employees. As benefits for the working poor are introduced, fast food restaurants might lower the wages they offer to employees, either consciously or simply due to the growing supply of low-skilled workers drawn into the labor force by benefits such as the EITC. Mathematically, the only way for fast food chains to truly "cost" the government the $3.8 billion that NELP claims, is if these restaurants cut wages dollar-for-dollar as government benefits for employees rise.

If NELP is right, though, that has important implications for how we view the welfare state. For instance, a dollar-for-dollar offset implies that federal transfer programs drive down working-class wages, since the higher benefits rise, the more wages fall. Thus, according to NELP's logic, it is federal government policy that lies behind working-class wage stagnation in recent years.

This same logic also suggests that the hundreds of billions spent over decades on social transfer programs for the working poor have done nothing to raise the standard of living of beneficiaries, since every dollar is skimmed off by Ronald McDonald and the shareholders he fronts for. Many conservatives might be willing to accept and tout these conclusions, but it is curious to find them emanating from left-leaning groups. Yet that is precisely what the NELP report implies.

NELP should be discussing the major causes of low wages — poor skills, caused by weak schools and even weaker family structures. Simply put, many adults are today trying to support families in jobs that we've traditionally assumed pretty much any teenager was skilled enough to perform. Instead, the NELP study presents a villain (literally) in a clown suit, arguing that if only government were large enough and brave enough to vanquish it, everything would improve immeasurably. The NELP study is perfectly designed for press coverage and already is making the rounds through social media. But it is also is a perfect example of how today's discussion of public policy issues can distract rather than inform.

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About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
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    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

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