Column: How Andy Puzder’s fast-food industry sticks taxpayers with the cost of supporting its workers

The Carl’s Jr. and Hardee’s restaurant franchises headed by Andrew Puzder, President Trump’s Labor secretary nominee, are among the nation’s major employers of low-wage workers. As Puzder faces a confirmation hearing scheduled for Feb. 2, it’s proper to examine how much his industry’s employment practices cost the American taxpayer. It’s a bundle.

A 2013 study by the Center for Labor Research and Education at UC Berkeley found that public assistance for front-line fast-food workers costs roughly $7 billion a year. That’s a subset of the $152.8 billion the federal government spends on support for low-wage working families, according to a separate study.

Puzder’s CKE Restaurants, which owns the Carl’s Jr. and Hardee’s brands, collects a taxpayer-funded subsidy of about $247 million a year, according to an estimate by the National Employment Law Project. That’s what it takes, NELP said, to “offset poverty wages and keep [CKE’s] low-wage front-line workers and their families from economic disaster.”

NELP’s figures are approximations because CKE is a private company and stingy with financial information. The group extrapolated from costs of public services identified by the UC Berkeley labor center, especially for the participation of fast-food workers in Medicaid and the Children’s Health Insurance Program, food stamps, and the earned income tax credit, which carried the greatest burdens of fast-food industry employees. CKE says it doesn’t comment on “employee personal matters” such as enrollment in public programs.

The burdens that low-wage employers shift to taxpayers — think of it as socializing their employment expenses — crop up in public from time to time, usually when a big company is caught steering its workers to public health or welfare programs. In 2009, Ohio officials disclosed that more than 15,200 Wal-Mart employees in the state were receiving Medicaid and 12,700 were on food stamps. Wal-Mart topped the list of Ohio employers with employees in both programs. The company turned an operating profit of $22.8 billion that year.

The issue isn’t only one worthy of short-term concern. It’s important when weighing Puzder’s qualifications to become secretary of Labor, partially because of his hostility to raises in the minimum wage. He told me in March that he isn’t opposed to any increase at all, but to an increase to $12 or $15 an hour, which he described as “the kind of dramatic increases that are being bandied about in the political process right now.”

In inflation-adjusted terms, the federal minimum wage peaked in 1968. The federal minimum of $1.60 that year would be the equivalent of about $11 now. But the current minimum is just $7.25.

There’s evidence, however, that even more modest increases help to cut the need of low-wage workers for assistance from Medicaid and other programs. In a 2014 paper, UC Berkeley labor economist Michael Reich and Rachel West of the Center for American Progress asserted that increasing the minimum wage by 10% would reduce spending on the Supplemental Nutrition Assistance Program — SNAP, or food stamps — by about 1.9%.

They reckoned that the proposal then advanced in Congress by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) to raise the federal minimum wage to $10.10 per hour would reduce SNAP costs by about $4.6 billion a year.

Some effects of wage rates at Carl’s Jr. and Hardees restaurants are obscured because the vast majority of their workers aren’t technically CKE employees — they work for independent franchisees, who operate 94% of the restaurants, according to a company spokesperson. The spokesperson added that the company is “unable to disclose franchise employment numbers at this time.”

This arrangement has come under fire from federal regulators, including those at the Labor Department Puzder has been nominated to lead. The regulators have been pushing to have the big parent corporations designated “joint employers” of the workers, which would force them to take more responsibility for wages, hours and working conditions. Puzder has been a leader of the opposition to this initiative.

Puzder’s opposition to a large minimum wage increase is based in part on what may be an anachronistic picture of his own industry’s workforce. The industry depicts the average frontline fast-food worker as a kid entering the workforce for the first time, taking advantage of a low-wage, part-time job to learn good working habits as he or she moves up the ladder to management. Puzder waxed rhapsodic about this process in testimony in January 2015 to the Senate Committee on Health, Education, Labor and Pensions.

“As CEO, I’ve watched young men and women enter the labor force in our restaurants for over 14 years,” he said. “I’ve seen the pride and determination that leads to success in their careers and lives. … There’s nothing more fulfilling than seeing new and unskilled employees work their way up to managing a restaurant.”

The Berkeley Labor Center painted a different picture of the core fast-food workers, which it defined as someone working 27 weeks a year or more and 10 hours or more per week. Only about one in five of those workers are under the age of 19 and living with a parent; a much larger share, 26% have children of their own. “Overall, 68% of the core front-line workers in the fast-food industry are not in school and are single or married adults with or without children,” the Berkeley researchers found. “For more than two-thirds of these workers, fast-food wages are an essential component of family income.”

That places them squarely in the target population of federal assistance programs, especially Medicaid, food stamps and the earned income tax credit. More than half of the families of frontline fast-food workers are enrolled in one or more public assistance programs, Berkeley says, compared to 25% of the general workforce.

Some economists question whether it’s fair to say that that these programs are boons for low-wage employers. Gary Burtless of the Brooking Institution, for example, argued in 2015 that it’s “flatly wrong” to call them “a handout to Walmart, McDonalds, and other low-wage employers.” Because these programs reduce the number of adults “willing to work for low pay and lousy benefits,” they force employers to pay higher wages to get workers into such jobs — in other words, they’re a cost, not a subsidy. Burtless distinguished programs available only to working individuals, such as the earned income tax credit and child care subsidies for low-earning parents. These, he said, can force wages downward because they encourage low-wage workers to remain in the workforce

But Ken Jacobs, head of the Berkeley labor center and an author of its minimum wage reports, says those arguments are beside the point. “It’s clearly the case that firms that don’t pay their workers enough to get by are shifting those costs to taxpayers.” Given the evidence that public costs come down when employers raise pay, then “if employers paid better wages, we could spend public funds in more efficient ways.”

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UPDATES:

4:32 p.m.: This post has been updated with comments from a CKE spokesperson.