While workforce poverty is nothing new, it is starting to become embarrassing for a number of G20 nations. It is now becoming quite clear that low US minimum wages have led to sharply increased demand for US government welfare, and that many of the largest US corporations are the direct beneficiaries of that welfare expense.
In a recent Berkeley University research study, it was estimated that roughly 73% of American welfare recipients are members of ‘working families’ whose household income is simply not high enough to cover their basic life needs.
Berkeley University estimates that the US government provides $7 billion each year in welfare assistance to families of workers in the US fast-food industry, because their wages are too low to meet their most basic needs. This is effectively an industry wide wage subsidy to the highly profitable fast-food sector, as more than half the families of US fast-food industry workers (working 40+ hours per week) currently receive direct government welfare to provide for their most basic needs.
The health impacts of US food stamp programs have also been dramatic, with cheap junk food often the most affordable option for welfare recipients, which has been linked to dramatic increases in obesity and diabetes rates among working families on the minimum wage.
A number of the largest junk and processed food manufacturers are also aggressive lobbyists for the expansion of the US food stamp program. Kraft has acknowledged that roughly 12% of their revenue comes from US food stamps. Yum! Brands, who operate KFC and Pizza Hut, have unsuccessfully lobbied for many years to be approved outlets for food stamp spending.
The net effect of these long-running US policies has been a shift in costs, from private sector wages to direct government welfare programs, and ultimately to government health programs. Despite the well established nature of these arrangements, they are now starting to generate highly negative social media coverage, and impact on the image of some major US corporations.
Walmart is estimated to receive 18% of all US food stamp spending, which equates to roughly $14 billion per year, with the average Walmart employee estimated to earn $18,000 per year – a little more than the US poverty line. One Walmart store recently attracted negative publicity when it was discovered that their employees earn so little that they were unable to afford food for Thanksgiving, and were begging for charity food donations from their colleagues and customers.
McDonald’s also recently faced social media ridicule when their HR department advised an employee struggling to pay bills to enrol in government welfare programs and find a second full-time job.
Consumer spending makes up roughly 66% of US GDP, and is currently growing at an anaemic 1.5% per annum. Perhaps it shouldn’t be terribly surprising that the US federal government is attempting to lift the minimum US wage to US$10 per hour, justifying the move based on projected welfare savings and increased consumer spending.
If anything, the last 20 years of government policy in Japan and the US have been the golden years for trickledown economics among political parties and business lobbyists, and have enabled the economic analysis of the effect of low minimum wages on national economic performance.
Australian business leaders should be focusing on improving business productivity, rather than simply measuring wages. Our workforce is rapidly ageing, and retention and retraining of employees should be a critical priority for many businesses. The lessons from the decades of low minimum wage experience in Japan and the US are only now becoming clear, with corporate dependence on welfare spending emerging as a very serious political issue.
