The column headline was sensational: Donald Trump’s nominee for Labor Secretary, CKE Restaurants CEO Andrew Puzder, “sticks taxpayers with the cost” of supporting his employees and the employees of his franchisees.
As proof, the author–Los Angeles Times labor columnist Michael Hiltzik–pointed readers to a policy paper from the union-backed National Employment Law Project (NELP), which claimed that Puzder’s restaurant company receives an estimated annual taxpayer subsidy of $247 million.
The NELP analysis doesn’t survive even the most basic scrutiny.
NELP bases its estimate on an earlier report authored by a team of researchers affiliated with the University of California-Berkeley, who work closely with labor unions and whose report was funded through the SEIU. The report suggested that the fast food industry was a unique beneficiary of a taxpayer subsidy due to the lower wages paid to its less-experienced employees. The authors pegged the taxpayer cost of a “front line” fast food job at roughly $3,300. (The “front line” figure excludes managers, supervisors, and a number of other employee types; it also excludes employees, such as teens, who may work fewer than six months per year.)
Put differently, NELP’s number works as confirmation-season rhetoric, but doesn’t match reality.
After the original Berkeley report was released in 2013, I testified before a joint Senate-Assembly hearing of the California state legislature to describe the multiple problems with the authors’ approach:
…the authors calculate that fast-food workers and their families represent nearly $7 billion in total safety net spending. That number is intended to shock, but it represents just 1.8 percent of all spending on the aforementioned [safety net] programs. And since Census Bureau data show that employees of fast-food restaurants represent about 3.3 percent of the private sector workforce, they’re a “disproportionate” share of spending only in the sense that government spends less on them relative to their share of the workforce.
I also noted that many of the purportedly low-income recipients of these benefits were not actually low-income, given that a significant percentage of the fast food workforce lives in middle- or higher-income households. These employees may still qualify for programs such as the Children’s Health Insurance Program, which is available even to some families with six-figure incomes–but this is hardly a picture of a workforce (or an industry) growing fat on the taxpayer dime.
Even economists sympathetic to the goal of raising the minimum wage poked holes in the Berkeley team’s original “subsidy” thesis. One of the country’s foremost academic proponent of a higher minimum wage pointed out that programs such as SNAP actually put “upward pressure on the [worker’s] wage.” That’s because they increase the wage that an employer has to pay for someone to choose a job over staying home. (To Hiltzik’s credit, he references a similar criticism in his piece.)
The most damning argument against the taxpayer subsidy argument is that the empirical evidence shows there’s little relationship between a rising minimum wage and taxpayer expenditures on public programs. A 2015 paper authored by economists at San Diego State University and released by my organization found minimal benefit for taxpayers after a wage hike. One reason: Some employees who lose their jobs after the mandated wage goes up are left more dependent on government than they were before.
It’s a story that doesn’t fit nicely on a poster board–or in a pitch to a Los Angeles Times columnist, for that matter. But it does have the benefit of being factually-sound, which is more than can be said for the NELP report and an earlier unscientific survey of Hardee’s and Carl’s Jr. employees that was conducted via social media. Senators interested in the real news on President Trump’s Labor Secretary-designate should treat these eye-catching headlines with the skepticism they deserve.