The federal government is better at creating low-paying jobs than Wal-Mart and McDonald's combined, according to a new report.
A study released earlier this month from the public policy group Demos states that through various forms of government funding in the private sector, nearly two million people are making $12 an hour or less. The number of workers at Wal-Mart (WMT) and McDonald's (MCD) together at $12 an hour or less is currently around 1.5 million, according to the report.
"The sheer number of those workers making so little is surprising," said Amy Traub, a senior policy analyst at Demos and co-author of the study.
"We assume people working on behalf of America would be making more, but that's not the case," Traub said. "And many of these people are making less than $12 an hour."
The report says that when tax dollars underwrite bad jobs, the economy as a whole is weakened.
"People at these levels of income have to go on food stamps or other forms of government assistance and this just compounds the problem," Traub argued. "They're not making a living wage and the economy suffers."
Federal contracting to the private sector has grown over the years, doubling between 1990 and 2009, though it has decreased slightly since 2010, according to the Demos survey.
(Read more: Where the Summer Job Market Is Heating Up )
But the amount is still huge. American businesses got $446.5 billion from taxpayers last year in the form of grants, loans, and subsidies. Industries receiving funds include manufacturing, construction, food service, health care, retail and manufacturing. The number of workers under that funding totals 2.2 million.
The report says that most of the low-wage workers are clustered in sectors like apparel, construction, education and retail. But even industries seen as higher paying, such as scientific research, are among those with workers making $12 or less an hour.
The biggest offenders came from those companies receiving direct federal contracts. Some 560,000 workers in those firms make $12 an hour or less, says the report.
Breaking down the sectors in all government funding shows retail- with 59,977 people making $12 an hour or less-the largest group with low wages.
(Read more: The Economics of Stay-at-Home Moms )
"This is another example of our low-wage economy," said Jason Bent, a professor of employment law at Stetson University. "Private companies with government contracts are doing the same thing as those that don't have contracts. They're paying low wages to cut costs."
Companies receiving some sort of government funding are mandated by law to uphold high employment practices including prevailing wages within a particular area of work.
But the Demos report states that most firms are not holding up their end of the bargain and are actually creating a wage gap.
Traub says the study highlights the disparity between those at the top of firms with government funding and those at the bottom. It singled out CEOs at Lockheed (LMT) and Northrop Grumman (NOC)-whose firms are headquartered in the Washington, DC, area-for making millions in compensation while about 15 percent of federal contract workers in the same region are low-wage.
Low-wage jobs are becoming standard in the economy, say experts. A National Employment Law Project report in 2012 found that three out of five jobs added after the recession have been low-wage jobs, even though just one in five jobs lost during the recession was low-wage.
About a third of all workers in the U.S. make $12 an hour or less. A $12 an hour job is equivalent to a full-time worker with an annual income of $24,000 a year. For 2013, the Federal poverty guideline is an annual income of $23,550 for a family of four.
Traub said Congress will be having hearings on the issue raised in her report later this month. She hopes some action will be taken to brighten the prospects of workers.
"We'd love to have something done, especially since the president called for raising the minimum wage, "Traub went to to say. "This doesn't seem right to have people working for America getting pushed to the economic bottom."
More From CNBC
Class of 2013: Overqualified and Underprepared
Poorer Students Getting Less Aid Than Rich Peers
Another Crisis Coming, Worse Than the Last: Roche