University of California Institute for Labor and Employment

California’s new economy is fostering far more growth among high- and low-wage jobs compared to middle-income jobs. The development of the hourglass economy means that there is a growing number of low-wage workers who cannot support their families even if they work full-time. As a consequence, they must turn to public assistance to meet the basic needs of their families. This study by Carol Zabin, Arindrajit Dube, and Ken Jacobs is the first to quantify how much it costs the public to provide what paychecks don’t. In California, two million working families received public assistance in 2002. The price tag for this assistance was $10 billion per year, with most support going to families with full-time workers who earned near the minimum wage.

The authors analyzed the ten largest means-tested public assistance programs that Californians participate in: Medi-Cal, the Earned Income Tax Credit, CalWORKs, Food Stamps, Free or Reduced Price Lunch, Women, Infants, and Children Nutrition Program, Low Income Heat and Energy Assistance, Healthy Families, and Section 8 Rental Assistance. They matched 2002 administrative data from the programs with 2002 detailed demographic and employment data from the federal government’s Current Population Survey. They estimated how many program participants are in working families and the savings that could accrue if workers earned higher wages and received benefits.

The authors found that half of all means-tested public assistance dollars are going to families who are working and that most workers on public assistance earn wages that are close to the minimum wage. They conclude that full-time employment at low wages does not bring self-sufficiency to these families and that small improvements in wages could move many off public programs, freeing up scarce resources for families currently on waiting lists. If all workers in the state earned a minimum of $8 an hour, program costs would be reduced by $2.7 billion. A movement to $14 per hour would reduce expenditures by 5.6 billion dollars. Likewise, if jobs included health benefits, even at current wage levels, $2.1 billion in expenditures could be put to other uses.