Two studies released Tuesday say the effects of low wages paid to quick-service restaurant workers ultimately cost Americans billions of dollars — a claim that could intensify the growing strife over restaurant industry pay.

A report from the University of California, Berkeley, found that low restaurant wages — and the subsequent need for workers to use government subsidies — cost U.S. taxpayers about $7 billion a year, while a study released by the pro-labor National Employment Law Project found that the 10 largest quick-service restaurant companies cost American taxpayers more than $3.8 billion a year in public assistance.


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The restaurant industry has increasingly found itself at the focal point of a growing debate over hourly pay practices and the minimum wage in the United States. Advocates for higher wages have targeted quick-service restaurants, demanding an increase of pay to $15 per hour, from the federal hourly minimum wage of $7.25. Many advocates have organized protests, the largest of which encouraged worker walkouts at chains such as McDonald’s, Wendy’s and KFC in more than 60 cities in August.

“The combination of low wages, meager benefits and often part-time hours means that many of the families of fast-food workers must rely on taxpayer-funded safety-net programs to make ends meet,” said the UC-Berkeley report co-author Ken Jacobs, chair of the University of California, Berkeley Labor Center.

According to the report, 52 percent of families of core front-line workers at quick-service chains are enrolled in at least one of four federal safety-net programs as a result of poor wages — more than twice the rate of the U.S. workforce as a whole.

Jacobs said the $7 billion annual cost includes $3.9 billion for health insurance through Medicaid and the Children’s Health Insurance Program, $1.9 billion for the Earned Income Tax Credit, slightly more than $1 billion for the Supplemental Nutrition Assistance Program, and the remainder for Temporary Assistance for Needy Families program.

The National Restaurant Association disputed the reports.

“These misleading efforts use a very narrow lens and selective data to attack the industry for their own purposes and fail to recognize that the majority of lower-wage employees works part-time to supplement a family income,” Scott DeFife, the National Restaurant Association’s executive vice president for policy and government affairs, said in a statement. “Moreover, 40 percent of line staff workers in restaurants, the primary focus of the reports, are students.”

Worker Center Watch, a coalition of business owners that opposes union activities, said the reports distorted facts and were funded by Fast Food Forward, an organization behind the recent restaurant strikes. Ryan Williams, spokesman for Worker Center Watch, said the studies were part of a “coordinated attempt by Big Labor to leverage worker centers as a way to soften up service industry employers for unionization. …”

Restaurant wages vary widely

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In a Nation’s Restaurant News special report on wage economics, restaurant operators maintained that hourly pay rates are already higher than the federal minimum. Data from different research groups supports their claims, finding that pay levels for hourly employees — both tipped and non-tipped — vary widely, depending on the state, the market, the employee’s experience and other factors.

“When we look at all hourly employees, 92 percent are paid above minimum wage,” according to Michael Harms, executive director of operations for People Report, a Dallas-based firm that tracks workforce trends in the foodservice industry. “As for those who are making the minimum or less, 25 percent have experience levels of 0.1 years tenure or less, 50 percent have half a year of experience or less, and 75 percent have 1.5 years of experience or less.”

Government data support Harms’ research. According to the Department of Labor’s Bureau of Labor Statistics, the mean hourly wage for a quick-service cook in 2012 was $9.03, with that rate ranging from $12.94 for the same position in New Haven, Conn., to $8.14 in rural Kansas.

Separately from the UC-Berkeley report, the National Employment Law Project examined quick-service restaurant companies and workers, finding seven of the largest publicly traded companies awarded their chief executives $53 million in compensation, while hourly workers struggled, according to Jack Temple, a policy analyst with NELP.

“Low-wage fast-food jobs are expensive for all of us,” Temple noted. “The low-wage, no-benefit, limited-hours business model in the fast-food industry is costing a substantial amount each year, even as these companies continue to earn strong profits.”

The NELP study indicated that low-wage jobs at McDonald’s cost taxpayers an estimated $1.2 billion a year. Yum! Brands, Subway, Burger King and Wendy’s rounded out the top five quick-service companies whose workers depend on public assistance to afford the basics for their families, according to the study.

According to analysis from Trinity Capital LLC, an investment banking firm, a typical quick-service restaurant company’s earnings would be negatively impacted with minimum hourly wages above $10.25. At that point, labor expenses, which are typically 33 percent of sales, would rise to 42 percent of sales and allow for a business to only break even, rather than book a profit. Find details of that analysis here >>

— Lisa Jennings contributed to this report  

Contact Ron Ruggless at ronald.ruggless@penton.com.
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