The Taxpayer Costs of Low-Wage Fast Food Jobs in New York State

October 16, 2013. Fast food jobs are by far the biggest source of job growth in New York State and New York City in this recovery and over the past decade. But, with a median hourly pay of only $8.90 an hour in NYC, this growth in fast food jobs is one of the reasons that poverty has risen sharply during the recovery.

NYC has a record number of working poor—one out of every 10 workers in NYC works, but can’t earn enough to lift their family earnings above the poverty line. The rapid increase in fast food employment is a huge contributor to this condition. The single most important way for NYC to reduce its widening income polarization is to make sure that more workers can earn enough through their labor to rise out of poverty and pay their own way.

A new report documents that the low-wage business model of large fast food chains sticks taxpayers with a huge tab. The study, by researchers at the University of California at Berkeley and the University of Illinois, shows that the earnings of fast food workers around the country and in New York are so low that over half qualify for one or more forms of public assistance, such as Medicaid or food stamps.

This new study documents the three major challenges faced by fast food workers:

  • Low wages: front-line fast food jobs pay an average of $8.69 an hour nationally;
  • No benefits: 87% of fast food workers do not receive health benefits from their employer; and
  • Not enough hours: fewer than 3 in 10 (28%) work 40-hour weeks.

The low-wage business model that drives so much of the fast food industry in the U.S. leaves hundreds of thousands of its workers with no choice but to apply for Medicaid and food stamps. This costs taxpayers an estimated $7 billion per year.

Yet, as a companion report by the National Employment Law Project shows, the 10 largest fast food chains in the country are very profitable and pay their top executives in the millions. Last year, the 10 largest fast food chains booked $7.4 billion in profits and paid their CEOs an average of over $7 million each. These 10 corporations employed 2.25 million workers in the U.S., costing taxpayers an estimated $3.8 billion based on their low-wage business model.

According to the Berkeley-Illinois report, there are 104,000 front-line fast food workers in New York State receiving an estimated $708 million in publicly-funded subsidies such as Medicaid and food stamps. Three out of every 5 fast food workers in NYS received one or more forms of public assistance.

Last year, NYC’s fast food restaurants employed 57,000 workers. Over the past 4 years, the number of fast food jobs in NYC increased by nearly 30%, almost 10 times as fast as the 3% overall increase in private sector employment over that period. The number of fast food outlets in the five boroughs grew even faster, by 42% from 4,600 in 2008, to 6,600 in 2012.

Manhattan has 2,400 fast food outlets employing over 25,000 workers. While average annual wages in the fast food industry were $19,100 in Manhattan in 2012, average wages were much lower in the other boroughs, ranging from $14,000 in Staten Island to $15,500 in Brooklyn.

Since 2000 (first half of 2000 to first half of 2013), in the downstate suburbs and upstate New York, the growth in the number of fast food jobs alone is nearly as great as the net gain of 38,000 jobs in total public and private employment, according to data from the New York State Labor Department.

Because of their visibility and rapid growth, prominent fast food chains exert a dominant force in pay practices at the low end of the job market. Their low-wage business model involves paying workers so little that 60% of the fast food workers in New York State have to turn to food stamps, Medicaid or other public subsidies just to get by. This practice keeps the profits of giant fast food chains high by shifting part of their labor costs to taxpayers. It would be far better if fast food workers were paid wages that allowed them to pay their own way.