Call it the "Wal-Mart Syndrome".
Entire industries — such as low-end retailers like Wal-Mart Stores Inc. (NYSE: WMT) and fast food chains like McDonald's Inc. (NYSE: MCD) – pump up their profits by paying employees extremely low wages.
But thousands of Americans who need to support a household on such low wages – either the federally mandated minimum wage of $7.25 or just a bit above it – can only do so with public assistance.
In other words, with the help of welfare.
"When low wages leave Wal-Mart workers unable to afford the necessities of life, taxpayers pick up the tab," said a report released last month by the Democratic staff of the U.S. House Committee on Education and the Workforce.
That report estimated that a single 300-employee Wal-Mart Supercenter store in Wisconsin cost taxpayers at least $904,542 a year in public assistance payments.
And Wal-Mart employs 1.4 million people nationwide.
And according to a study by the National Employment Project last year, 26% of the private sector jobs in the U.S. – 29.6 million jobs — pay less than $10 per hour.
A few back-of-the-napkin calculations put the national taxpayer cost of the Wal-Mart Syndrome well into the tens of billions of dollars.
The True Cost of the Wal-Mart Syndrome
The Congressional staff report based their $904,542 figure on an average of $3,015 of state and federal benefits per employee.
Keep in mind though, that's just an average. Some people will receive more benefits than others (particularly if they have children), and surely many receive none.
But using $3,015 per year as the average per employee is not that outlandish a figure. Depending on which state they live in, people making $10 an hour or less are usually eligible for benefits worth $10,000 a year, $20,000 a year or more.
In addition the Congressional report did not count everyone eligible to receive benefits in its estimate, but used actual Wisconsin Medicaid participation numbers. (Counting everyone eligible resulted in an average of $5,815 in annual benefits, for a total cost of $1.745 million just for the one Wal-Mart.)
But if we take that somewhat conservative figure of $3,015 and multiply it by the number of Americans making $10 an hour or less, we get an aggregate cost to U.S. taxpayers of $89.2 billion a year.
And that's probably a low ball number when you consider that state and federal assistance programs together cost nearly $1 trillion each year.
Trapped in the Wal-Mart Syndrome
One way to fix the Wal-Mart Syndrome is to dramatically increase the minimum wage, though it's an imperfect solution at best.