New Report Reveals American Tax Dollars Fuel Low-Wage Work, Worsen Inequality

Release Date: 
May 8, 2013

NEW YORK, NY – With much attention on labor strikes spreading across the country to protest low pay and poor working conditions in the retail and fast food industries, national public policy center Demos releases a new report today documenting a surprising part of the economy where low wages are prevalent. Underwriting Bad Jobs: How Our Tax Dollars Are Funding Low-Wage Work and Fueling Inequality reveals the ways in which private sector companies supported by tax dollars through government contracting and other federal funding are paying low wages to nearly two million employees working on behalf of America, a greater number of low-wage workers than those employed by consumer giants Walmart and McDonalds combined.

Read the report: Underwriting Bad Jobs

Not only is this practice fueling a low-wage economy, it also contributes to the dramatic rise in economic inequality, particularly in the Washington, D.C. region.

The report analyzes the earnings of workers employed by government contractors, paid by federal healthcare spending, supported by Small Business Administration Loans, working on federal infrastructure construction grants and maintaining buildings leased by the federal government.

These employees earning $12 an hour or less, or an annual income equivalent to a maximum of $24,000 for full-time work, represent a large spectrum of occupations including contract workers sewing military uniforms, hospital and eldercare aides funded by Medicare, security guards and janitorial staff hired to protect and clean public buildings, as well as retail workers whose companies receive federal loans. The report details these low-wage positions and many more, uncovering a huge low-wage economy unwittingly funded by American taxpayers, one in sharp contrast with the huge compensation of the CEOs of many companies receiving taxpayer dollars. 

“In one of the categories we studied, over $446 billion went to private businesses for federal contracting work in 2012 employing 2.2 million workers, 560,000 of which were paid less than $12 an hour. Similarly, a staggering $552 billion supported 3.7 million jobs at private healthcare facilities. Despite the important role these workers play in caring for the country’s ill, elderly, disabled and veteran populations, almost one-third of these tax dollar-supported healthcare positions were low-wage, paying too little to support a family,” said Robert Hiltonsmith, Demos Policy Analyst and co-author of the report. Yet senior executives at contracted companies may receive a reimbursement up to $763,000 from the government towards their own compensation. For perspective, the president makes an annual salary of $400,000.” 

“Not only is this practice fueling a low-wage economy, it also contributes to the dramatic rise in economic inequality, particularly in the Washington, D.C. region through which an estimated 15 cents from every dollar in the federal procurement budget flowed in 2011,” added Amy Traub, Demos Senior Policy Analyst and report co-author. “These are people working on behalf of America, doing work we’ve decided is worthy of public funding. But we’re treating them in a very un-American way. We owe them more.”  

Underwriting Bad Jobs illustrates how the nation’s prevailing wage laws fail to guarantee decent pay for private sector employees supported by public dollars. A federal executive order modeled on state- and local-level living wage laws could raise standards for these workers. Research into the impact of existing living wage laws indicates that costs to taxpayers and businesses do not rise substantially when companies are required to pay decent wages because they benefit from higher productivity, save money from reduced employee turnover, and public demand for programs is reduced. 

Demos is a public policy organization working for an America where we all have an equal say in our democracy and an equal chance in our economy. Underwriting Bad Jobs: How Our Tax Dollars Are Funding Low-Wage Work and Fueling Inequality is part of Demos’ on-going work creating pathways to ensure a strong and diverse middle class. The organization also released the recent report Retail’s Hidden Potential: How Raising Wages Would Benefit Workers, the Industry and the Economy Overall, examining the economic benefits of a wage increase for large chain retail workers.

To speak with Amy Traub or Robert Hiltonsmith, please contact:

Elektra Gray

Director of Communications

egray@demos.org 

212-485-6014