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Underwriting Bad Jobs: How Our Tax Dollars are Funding Low-Wage Work and Fueling Inequality

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Every day, Americans benefit from public structures that contribute to our quality of life. When we walk into a clean, well-maintained post office; drive on federal highways; send our kids to school knowing they’ll get a hot lunch; or call the Social Security benefits office with a question, we see our federal tax dollars at work, providing public services we rely on.

What most Americans don’t know is that many of the workers keeping our nation humming are paid low wages, earning barely enough to afford essentials like food, health care, utilities and rent. Through federal contracts and other funding, our tax dollars are fueling the low-wage economy and exacerbating inequality. Hundreds of billions of dollars in federal contracts, grants, loans, concession agreements and property leases go to private companies that pay low wages, provide few benefits, and offer employees little opportunity to work their way into the middle class. At the same time, many of these companies are providing their executives with exorbitant compensation.

We find that nearly two million private sector employees working on behalf of America earn wages too low to support a family, making $12 or less per hour. This is more than the number of low-wage workers at Walmart and McDonalds combined. Yet, if anything, this figure underestimates the total number of poorly-paid workers funded by our tax dollars. Our analysis encompasses U.S. workers employed by government contractors, paid by federal health care spending, supported by Small Business Administration loans, working on federal construction grants, and maintaining buildings leased by the federal government. This encompasses the largest share of poorly-paid workers funded by our taxes. However, other streams of funding have yet to be analyzed. For example, loans and subsidies from the Department of Agriculture fund giant agribusinesses that employ more than a million farm workers, while grants from the Department of Education fund low-wage assistant teachers, bus monitors and cooks in Head Start and other programs. Due to lack of data, retail and food service workers for concessionaires of the National Parks Service and other federal agencies also fall outside our analysis.

These are employees working on behalf of America, doing jobs that we have decided are worthy of public funding—yet they’re being treated in a very un-American way. Our nation has a history of ensuring our tax dollars provide decent jobs. From the 1931 Davis-Bacon Act to Executive Order 11246 of 1965, and a host of other laws and executive actions, our laws have mandated that companies working on behalf of the American people are upholding high standards of employment practices. Yet as the nature and prevalence of federal contracting, lending and grant-making have changed, and some laws have been weakened, working people have fallen through the cracks.

When our tax dollars underwrite bad jobs, the economy as a whole is weakened and all of us are negatively affected. There is a ripple effect as low-paid workers and their families have little money to spend, hindering economic growth that could be creating more jobs. Poorly-paid workers also contribute less in taxes and are more likely to rely on public benefits to care for their families. In contrast, we would all benefit from an economy where workers earn good wages—and we have a special responsibility to see that the people working on behalf of our nation are paid and treated fairly. Raising standards for people working on behalf of America is one important piece to providing opportunities for workers to reach the middle class.

In his 2013 State of the Union Address, President Obama acknowledged the key role that middle-class jobs play in our economy, announcing that “it is our generation’s task to reignite the true engine of America’s economic growth—a rising, thriving middle class.” President Obama outlined a powerful policy vision to strengthen the middle class and jumpstart the economy, from raising the minimum wage to making high-quality preschool accessible to all Americans. Yet these proposals will require Congressional approval. Meanwhile, President Obama has significant authority to improve the jobs of nearly two million poorly-paid workers whose work is paid for with our tax dollars through an executive order.
 
At a time of budget cuts and austerity, lifting and broadening standards for employees working on behalf of America would not necessarily mean a significant increase in the tab for taxpayers. Evidence on the impact of local living wage laws and economic development agreements that incorporate job standards indicates that the cost to taxpayers does not rise dramatically when workers are paid decent wages. In addition, companies that raise wages benefit from productivity gains and reduced employee turnover. By raising wages for these workers, there will also be public savings due to the reduction in demand for public benefits like food stamps. Finally, high salaries of executives at contracting firms suggest that there are substantial funds that could be better allocated. In many cases, raising wage standards for workers may not require any additional taxpayer dollars.
 
Today, we have an opportunity to do right by workers who are working on behalf of America by ensuring our tax dollars are providing decent and fair wages. This report provides an analysis of the current composition of poorly-paid workers whose jobs are funded with our tax dollars. These workers represent a large spectrum of occupations, from workers sewing military uniforms to hospital aides funded by Medicare, security guards with contracts to protect public buildings, and food cart vendors at the National Zoo. We look at the role of taxpayer dollars in fueling the low-wage labor market and explore the disparity between low-wage workers and highly-paid CEOs in the Washington D.C. area, where a disproportionate percentage of contracting dollars are spent. Finally, we offer policy recommendations outlining an executive order that could raise standards for low-wage employees who are working on behalf of our country.