Do government benefits for the poor subsidize large employers?

Adam Ozimek has a very good post on that topic, here is one of his final bits:

…many of these programs, including Medicaid and food stamps, are means-tested. That means as you earn more the programs become less generous, and as a result can generate extremely high marginal tax rates for low-income workers. This will reduce labor supply and create the exact opposite effect that “corporate subsidy” critics claim.

Unfortunately, there is little basis to claim that most public assistance programs benefit employers. This is unfortunate because such subsidies would incentivize firms to hire more low-income workers.

Do read the whole thing.


I've been making this point for years. Yes the government cuts checks to Wal-Mart employees, but they send bigger ones if they decide to quit. If I give my dog one treat for peeing outside he'll get house-trained, but if I give him two treats for peeing inside my carpet's going to smell like piss.

+1. Workers at the labour margin have very strong incentives to not work.

It reminds me of a wag who said the optimal tax rate is a sort of Laffer Curve: the poor and rich pay no taxes, only the middle class, so it gives you incentive to either become rich or poor. I guess, taken to the logical extreme, you can say the optimal tax is a regressive tax, to give incentive to people to work harder to get out of their existing tax bracket. Ridiculous, kind of like that dagger on the steering wheel to prevent accidents. What invention was that? From GMU Public Choice law school I think, that dude that died last year... Henry G. Manne...or maybe I'm mixing my metaphors.

indecipherable bar room or wine cafe babble. *hat tip: you'll never understand the simple Laffer Curve by going to wikipedia . . .

Re: Yes the government cuts checks to Wal-Mart employees, but they send bigger ones if they decide to quit.

Um, no. With very rare exceptions, you cannot get unemployment if you voluntarily quit a job.

This isn't about unemployment, it's about "welfare" programs like food stamps, TANF, Medicaid, etc. See the link for the recent NYT story and the study on which it's based.

Medicaid is not really a "welfare" program: it does not pay the recipient anything and it is not fungible for cash.
The majority of impoverished people qualify only for food stamps (and maybe Medicaid, but see above). You have to have minor children, be disabled or be over 65 to qualify for other forms of what we call "Welfare".

The government would send a smaller check--or no check--to the employee working at the store that Walmart pushed out of town.

So, what is that employee doing? Is the store that closed the only job they could ever possibly work?

Of course not, but they are working a lower paying one.

This is something that is assumed rather than argued repeatedly, even though others have posted evidence suggesting the opposite.

The small retailers that I worked for paid minimum wage. And they were often the kind of people who you had to negotiate with to get the pay that they had agreed on.

Walmart entering a retail market drives down the wages in the area. Sure, some small places pay poorly, but Walmart coming to town spells lower wages on average.

Bu everyone, not just the retail employees, is paying less for stuff, so it kind of balances out.

So, instead of redistributing wealth from the people earning $50,000, $75,000, $100,000, $200,000, $500,000 to the retail workers in prices 1% higher, WalMart has cut prices 1% so the guy earning $500,000 has an extra $500 in his pocket which he really needs, and the guy making $50,000 has $1000 in his pocket which he uses to buy bigger portions to gain weight plus pay higher taxes to pay for the welfare of the retail clerks who took a 20% cut in income to lower prices pushing them onto the welfare rolls.

The market and prices for goods paying wages is a really really bad way of redistributing wealth! Much better to have government do it by taxes and welfare!

The guy making $500,000 with an extra $500 in his pocket is going to spend that money or invest it. And if you believe in all the Keynesian hooey, you should be grateful for the multiplier effect that will create. (or is government some sort of magic fairy dust that causes only money it spends to have a multiplier?)

I can't see what's so horrible about all sorts of people being able to purchase things for less and thereby improve their standard of living either.

'I can’t see what’s so horrible about all sorts of people being able to purchase things for less and thereby improve their standard of living either.'

Terry Pratchett time, or one of the major reasons Germans found Walmart to not actually sell things for less, because Walmart merchandise tends to be of the lowest possible quality -

'Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.'

Germans don't feel their standard of living is improved by buying cheap stuff that quickly wears out. But then, Germany is a socialist hellhole, one so awful that Germans no longer have the possibility to shop at Walmart.

Walmart has been cutting prices in the 8-9% range. Most of it's customers are in the lower income brackets.

Redo your math, please.

Hazel Meade: A lot of our money is not spent on socks, calculators and other cheap foreign made items typically sold at a big retail stores.

The price of food is up, the price of housing is way up in many areas; the price of education and healthcare is way up.

These are the things that it making it impossible for people to pay their bills, pay for their kids' education and save for retirement (former hallmarks of middle class life) who make 3 or 4 times minimum wage, so obviously the poor often have a bigger problem.

The price of stocks are way up, way way up.

We cannot really justify so much of the money being made in America going to the 0.01% and .001%.

Maybe, but that has to be balanced against the fact that some people would be drawing bigger checks from the government if Wal Mart wasn't around. Example: lots of small towns don't have a sporting goods store, so when a Super Wal Mart opens with a sporting goods section and hires employees to staff it, that's a net increase in employment for the town. Same might go for appliances, home furnishings, etc.

Except a new Walmart opening actually reduces total retail employment in a town. Each Walmart worker replaces about 1.4 other retail jobs.

So you're saying that Walmart uses efficiencies of scale to increase retail productivity and bend the cost curve downward? And at the same time it expands the retailing sphere to areas that were previously under served. It's like Obamacare on steroids then, huh? Well, if Obamacare actually resulted in lower costs anyway.

A lot has changed over the last ten years, particularly Amazon, so I highly doubt that it would have such a dramatic affect on retailers.

It seems there are two types of people. People that hate Wal-Mart and people that have actually walked into a Wal-Mart store and bought something. Those of us in the latter group are pretty happy with the selection and low prices though I tend to avoid buying any fresh food at Wal-Mart or Sam's.

"People that hate Wal-Mart and people that have actually walked into a Wal-Mart store and bought something."

In my experience, there is only one kind of people, those who hate WalMart because they had to shop at WalMart.

I was so happy when Target opened a store in the area - the workers were better paid and thus provided better service and kept the store cleaner.

And I noticed that WalMart had one lower price and the rest were just the same and the selection was a lot less in the categories I shopped, from toilet paper to techie toys to DVDs. Best Buy, Target, the Market Basket in the news a year ago because the customers joined workers in striking against the new CEO the board installed had lower over all prices, better products, more selection, and thanks to better pay, better customer service.

This was in the post Sam Walton era when pumping up stock prices was the top priority and that meant profits trumped service, employees, quality, customer loyalty. The "market" did "solve" the problem by giving Target all the funding it needed to build stores to match every WalMart store. While the biggest loser was K-Mart-Sears, Target and a few others stopped WalMart from delivering to Wall Street's satisfaction. That lead to a change of management that is fighting to undue the damage to the goodwill that Sam Walton built.

I was amazed at the depths of the bad MBA era that I could walk into the store at any time of day and magically 17 people were ahead of me in line at checkout. 2am 3am 5am 3pm 10pm... (I was doing computer system troubleshooting so lots of weird hours). And I found that any time I waited in line anywhere, I would be able to start a conversation by saying "at least the line isn't as long as at WalMart". Everyone agreed. Most people still agree, even though WalMart is now no worse.

Mulp, you make a good point about how Wal-Mart's customers do not have much affection for Wal-Mart. It is a dreary place to shop, unlike Target. Last week my 5 year old daughter was jumping up and down laughing, "I'm so happy to be at Wal-Mart" because we were buying her an Elsa doll (from "Frozen"). I told her she might be the first person ever to say that :D

Wal-Mart is no fun, but it does have lower prices on a huge selection of products. With self-service checkout, there is little to no wait.

Maybe we should ban competition. I am still mad about the automobile pushing all those buggy makers into lower paying jobs

Do you have any evidence to back this up? Because I have seen data that say the small businesses that Walmart displaces pay less.

"Yes the government cuts checks to Wal-Mart employees, but they send bigger ones if they decide to quit."

Let's see, the welfare reform that mandates work requires you work to get welfare and after two years lifetime of welfare without work, welfare is cut off.

So, you are saying that WalMart workers get more money by quitting and ending up with no job and no welfare. Explain how that is possible.

No job means no welfare equals more money.

This is another facet of free lunch economics sold to the world by conservatives that baffles me.

This is like GDP growth increases when worker pay is cut to increase profits because workers are not consumers so lower pay never cuts demand, and consumers are people with infinite cash who spend it at higher rates when profits go up.

We are way beyond cutting taxes increases tax revenue.

TANF constituted $30 billion of state and federal spending in FY2013. Meanwhile Medicaid spending totals $430 billion, social security disability $200 billion, CHIP $13 billion, SNAP $80 billion, Section 8 and public housing $38 billion, UI insurance $90 billion, EITC $56 billion. For every dollar spent on work-promoting TANF, at least $25 is spent on assistance programs that economcially disincentive earned income.

Many the programs you listed have work requirements. For example I know people are required to work for SNAP, Medicaid and Section 8, and in my state there is 3 year lifetime limit for welfare in any case. Obviously people on disability aren't able to work. If there is an issue with people committing fraud then we should tighten up the system, but that has to do with how the program is administered not the program its self.

Yes the government cuts checks to Wal-Mart employees, but they send bigger ones if they decide to quit. If I give my dog one treat for peeing outside he’ll get house-trained, but if I give him two treats for peeing inside my carpet’s going to smell like piss.

You can only come to that conclusion if you ignore the wages they receive in return for working. A more accurate metaphor of current policies would be: "I give me dog a treat for peeing outside, but I still feed him even if he pees inside."

From the sound of things you would like to change this to: "I give my dog a one treat for peeing outside, but I starve him if he pees inside." Also I find it disturbing, but not surprising that the most popular comment on this post immediately dehumanizes the poor by comparing them to untrained animals.

Even if you believe that assistance programs are nothing but naked subsidies for low skill employment, can you think of anything better for the government to subsidize?

Outside of severe illness or disability, sustained unemployment is about the worst thing that can happen to you in an advanced democracy. Underemployment is not much better.

If you want low skill workers to have a genuine shot at the American dream, making them more attractive to employers is a pretty decent place to start.

Eh, a lot people just don't really care. They'd rather the government not levy the taxes needed to fund the assistance programs and let the low-skilled workers deal with their struggles on their own.

Those aren't the people making these complaints against Wal-Mart. It's not the anti-tax, anti-welfare people we're talking about. It's the pro-tax, pro-more-welfare people.

I feel like this is a fundamental misunderstanding of the complaints about corporate welfare. The issue is comparing a world without welfare to one with. Right now we're effectively paying the poor to exist; this means that their employers don't have to pay as much in order to clear the labor market for the amount of workers they desire as part of that cost is already paid by the government.

Means tested welfare is a different issue; it means that workers have less incentive to move further along the work/leisure curve as they get back less for every hour they work over their current amount. You always make more money for working more hours or a better paying job, but the cost of paying you shifts from the government to the firm.

If we assume that a firm wants a certain amount of labor from each worker, then all welfare serves to push up the minimum price each worker will take for that amount of labor. Now, as we're assuming that the demand for labor is fixed, we can plot out the general labor market as a normal distribution of how many workers are willing to work a given job for a wage. What basic, non-means tested welfare does is move the clearing price down by a fixed amount; some workers will be satisfied not working, but so long as your clearing price doesn't move past the mean you're still pretty much saving the entire welfare amount as a subsidy. You have to remove a significant portion of the labor force by making them more happy to not work before welfare cuts into the corporate profits (maybe even the whole left half of the distribution, I'm doing this in my head right now).

Means-tested welfare is a way to prevent people from dropping out of the labor force thanks to welfare. It generally increases with your income up to a certain point and then slowly drops, but you are always better off making another dollar of wage income than not in pure monetary terms. You solve the drop out problem with means-tested, but the result skews the distribution of jobs based on wage. A worker has less incentive to do more hours than in a welfareless system thanks to the diminishing marginal returns. Thus any firm that wants to employ a worker at or below the level where the diminishing marginal returns kicks in will benefit fully from the welfare subsidy, while said subsidy slowly disappears as the wage for a job increases.

Are means tested welfare and benefits the norm? There are many many extreme marginal taxes where a dollar costs you a substantial benefit worth thousands a year. Employees would revolt if their employer gave them a slight raise that cost them thousands of dollars.

My unscientific survey from being in the back rooms of the local Walmart doing other things is that many of their processes could be changed to get rid of a few people. I watched them unload a truck, and there were lots of people pushing boxes along. The wages they pay them are low, they didn't look otherwise employable (seriously).

And by the way, have you looked at the margins that Walmart generates as a percentage of sales? I suspect everyone here wouldn't even waste a glance at a proposal with those returns. Any labor increase will mean an increase in price.

Indeed, Walmart makes roughly $7,300 in net profit per employee. That's not exactly Wall Street territory.

That's only true if you assume that, without welfare, the poor would die off in such large numbers that low-wage employers would have a smaller pool of workers to hire. That seems unlikely.

Why? We're assuming that all employees get hired at the clearing price. You would have to have so many more people that are perfectly happy to live off non-working welfare as to drive the clearing price below the current level (which, remember, is all the welfare benefits + wage).

In regards to means-tested; the best ones are those that slowly phase out like the EITC. I can't speak as to how much of welfare means-tested nor how much of that is binary or phase-in/out.

I'm not following the last sentence of your first paragraph. You say that welfare is paying the poor to exist, which lowers the market clearing price. Does that mean that, without welfare, the poor would cease to exist so the price of cheap labor would go up?

Die off, maybe, maybe not. But if they survive they could only do so by obtaining the necessities of life by means that most of of us would find undesirable (and render them unemployable as well): in short, they would descent into criminality.

I don't understand your logic.
Why would the market clearing price of labor go down if workers get paid welfare? Do workers generally demand lower wages because their incomes are being subsidized? If anything, welfare would cause some workers to drop out of the workforce, causing the labor supply to diminish and the market clearing price would rise.

There are two kinds of subsidies.

We directly subsidize low wage workers by providing them with an EITC. This negative income tax makes working for $9/hour relatively more attractive than not working at all.

We also directly subsidize some companies by providing them with extra infrastructure or targeted tax breaks. For example, Nevada is giving Tesla millions of dollars in special tax breaks to encourage them to build their new factory in Reno instead of Somewhere Else.

It's this second kind of subsidy that we should be very skeptical of. It's one thing to provide a blanket subsidy to encourage people to enter the workforce. It's quite another to lavish millions of dollars on a single large employer.

When people complain about corporate welfare, they're usually talking about the second type.

When people complain about corporate welfare, yes, that's what they're talking about. But this is addressing the common complain that Wal-Mart (or whomever) is allowed to pay so little because the government provides various kinds of welfare benefits to the poor (read: Wal-Mart employees). That argument is an obvious non-starter (given that Wal-Mart of course wouldn't pay higher wages if there were no welfare benefits), but it's a common argument among the left anyway.

If you completely got rid of welfare, wages would, if anything, go down, because there would be more workers competing for the same job.
Somehow Wal-mart's critics seem to be operating under the illusion that workers just voluntarily stop trying to earn more money for every penny that they get in food stamps.

The workers go back home to their own countries.

Many of those workers would not be able to get by solely on the current Walmart wages. They would work elsewhere or Walmart would pay more.

If they could work elsewhere, what is stopping them from doing that now?

Assuming the welfare benefits are not conditional on getting paid less or working specifically for Walmart, there is nothing from stopping any of those workers from negotiating for better wages RIGHT NOW. If they're not doing that, it is because labor market competition is such that they can't get more. And labor market competition is not going to decrease if you cut welfare benefits. If anything, it will increase.

Would work elsewhere under what scenario? If there were no welfare? The nature of whatever welfare policies happen to be in place don't change the fact that being a Wal-Mart employee is an incredibly low-skill job that is probably never going to pay enough to live on.

Ozimek, a labor economist, reminds me of the course my state required of high school students back in the mid-1960s called "Problems in American Democracy". To the relief of his students and their parents, the teacher couldn't find any.

I thought there would be some kind of study.

Without welfare labor supply would be lower because these people would stay back in their home countries and not move here to cash in on our welfare.

This seems to typically come up in the discussion of minimum wages. The liberal claim is that raising the minimum wage would reduce welfare spending.

Which also runs into the argument of why it should be employers to bear the burden of addressing poverty rather than all taxpayers.

That argument implies you support taxpayer-supported welfare programs. Which, ok, but then let's stop complaining about welfare programs.

I'm not complaining about welfare programs. I'm complaining about the left who are obviously more anti-corporation than anti-poverty.

That's only part of it. The other part is that the Left loves to "delegate" problems to others. They want it fixed. If they cannot foist it on taxpayers, then the next biggest target is Big Business.

Ultimately employers do not bear that burden: they are not providing wages from the goodness of their heart and they do not print money in their basements. The money comes from the larger economy via their sales to their customers.

There may not be a subsidy in regards to employment costs, but there certainly is one in regards to revenue. A significant chunk of Walmart's revenue is from foodstamps.

"There may not be a subsidy in regards to employment costs, but there certainly is one in regards to revenue."

The US University and Healthcare system laughs at Walmart as a complete wannabe.

Walmart really does want the minimum wage raised because they recapture so much of it. Same with welfare benefits; if you know the poor are going to spend their money at your store, then it makes sense to lobby for a change that will inflict a small cost on you for a larger profit

And big companies like higher minimum wages because it hurts their smaller competition more than it hurts them. The great myth is that smaller mom and pop stores pay more than big box stores.

Oh, but it's true that Walmart pays less on average. See my links above.

It's true that they pay less on average than SMALL stores?

The papers you linked above say no such thing. What they do say is that Wal-Mart's entry into a market lowers wages of local competitors; we might expect that, given that competitors will be trying to cut costs to compete with Wal-Mart. What it doesn't say (as far as I can tell) is how Wal-Mart's wages actually compare to local competitors (as a group and stratified by size and sector). And as the paper you linked notes, the lowering of local wages is not necessarily a net economic negative; you'd have to balance that against the money people save by shopping at Wal-Mart, among other non-pecuniary benefits (time saved from shopping at one store vs. lots of stores; greater availability of goods in small towns; etc.).

Jan, you don't even have a clue what your own links mean. You are embarrassing yourself.

That doesn't make any sense either.

How the hell do you "profit" by paying people extra money, and then recapturing some of the extra money?

Hazel, you're confusing Walmart wanting to raise the minimum wage with Walmart wanting to just give their own workers a raise.

I don't know how to more easily explain to you that consumers tend to spend more when their incomes go up. Walmart employees aren't the only people who shop at Walmart.

Ok, I see what you're saying, if Walmart captures a large enough percentage of all low-wage earners as customers, it will potentially make more money off of those customers than it costs to pay the staff extra.

Of course, the money still has to come out of the economy somewhere else, in higher prices that higher wage earners will be paying at the other stores that employ the other low-wage earners. So there's still going to be consumers out there with less money to spend cancelling out the consumers with more money to spend.

I believe it is not so clear cut for them. If I recall, Walmart does not have a position on changing the minimum wage.

Dollar stores get an even larger proportion of their revenue from welfare recipients. That just means they serve very low income people.

Serious question: What does the literature have to say about more income leading to less work if the increased income level is still below the level of subsistence? Or below the level of perceived minimum societal participation?

Do what degree might "corporate welfare" be occurring through disincentives to unionization, political advocacy, or other nonmarket forces? I can speculate a scenario in which strategic conservatives consider welfare desirable as removal could lead to more intrusive market intervention in the long run.

The first part of that was what stuck out to me right away, in that he didn't really seem to acknowledge that threshold of subsistence. If the government pays some percent of the minimum of really keeping a person alive, it's not hard to believe that Walmart wouldn't be forced to factor that into their calculations for wages. In the non-welfare universe, if getting a job still doesn't pay enough to not be homeless, it seems like Walmart would have a much harder time finding enough people.

Beyond all the abstract stuff, my guess is that in the real world it's all way less straightforward than any of this could possibly measure, but still the arguments above seem to gloss over that point.

The first part of that was what stuck out to me right away, in that he didn’t really seem to acknowledge that threshold of subsistence.

The threshold of subsistence is so low as not to be significant. 1 billion people live on $2/day or less. An in the USA, here is a guy who lives in San Francisco on $7,000/year.

So what happens to rents if TANF, medicaid and SNAP and other means tested programs are ended? Especially now that there is an oversupply in many parts of the country.

"If the government pays some percent of the minimum of really keeping a person alive, it’s not hard to believe that Walmart wouldn’t be forced to factor that into their calculations for wages."

Walmart doesn't care about that calculation. Walmart pays the wage that will attract sufficient workers capable of doing the work it needs done. It's nonsensical to have such a discussion with respect to Walmart specifically or even retailers in general. They all compete in the same labor pool, so nothing about the point is specific to Walmart.

If the government pays some percent of the minimum of really keeping a person alive, it’s not hard to believe that Walmart wouldn’t be forced to factor that into their calculations for wages.

Why do you think that Walmart pays it's workers based on the minimum they need to stay alive? Do you really think wages would rise if there was no welfare? Why?

Walmart (or any other low wage employer) is naturally inclined to pay the least it can to maintain an effective workforce. That doesn't mean they won't pay more if labor supply is being sold at a higher price - their recent pay increases are a perfect indication of this. The subsistence/minimum participation argument isn't that it will affect Walmart's willingness to buy labor, it is that it will affect employees willingness to sell labor beneath a certain threshold. That lower bound threshold could be potentially moved by welfare. Any discussion of increased pay as consistent disincentive without consideration of lower threshold levels feels incomplete. Perhaps the effect is negligible or even nonexistent, but I would like to read the literature that demonstrates that.

But why would low-wage earners be willing to work for less money if they are getting food stamps? You seem to be assuming that workers stop bothering to try to get paid more as soon as they reach a subsistence threshold. Why would they do that?

If a worker is unwilling to work at a particular wage, his alternative is not a higher paying job. Refusing to sell labor below a certain threshold isn't going to cause employers to raise their wage offer unless there are high paying alternatives out there or the labor supply is tight enough to drive wages up. But if those conditions exist, they exist now, whether or not workers are getting welfare benefits.

"A story on this study in the New York Times illustrates the concern many are having, arguing that programs that help the poor also provide “a huge subsidy for employers of low-wage workers, from giants like McDonald’s and Walmart to mom-and-pop businesses.”

For better or worse, much of the political debate has been revolving around raising the minimum wage vs. expanding EITC. And the argument of the New York Times, et. al., is that EITC is an employer subsidy (even though the money goes to the employee) whereas raising the Minimum forces the employer to pay more, thus shifting the "subsidy" from taxpayers to employers.

The argument favoring expansion of EITC is that this encourages continued attachment to labor markets, whereas raising the Minimum does the opposite. In the end what matters is, what are the consequences of each choice?

I lean toward expanded EITC because I don't see robust demand for low-skill labor, and therefore assume that raising the Minimum will, in fact, significantly raise unemployment (even though it did not do so at some times in the past, when demand for such labor was stronger). I suppord expanded EITC because even low skill labor is worth something (although perhaps not enough to live on) and that's all many have to offer (and because telling people to get an education is bad advice for those who lack the capacity to benefit from that), but mostly because attachment to the world of work seems superior to a life of idleness.

Although an argument that raising the Minimum would have little or no effect on unemployment could be convincing. What's not convincing is the NYT's argument about subsidizing employers, for even if one were to stipulate that employers are being subsidized, in a competitive market I'd expect consumers and not business to capture most of that subsidy in lower prices. Who do you think shops at Walmart anyway, people on the staff of The New York Times?

For better or worse, much of the political debate has been revolving around raising the minimum wage vs. expanding EITC. And the argument of the New York Times, et. al., is that EITC is an employer subsidy (even though the money goes to the employee) whereas raising the Minimum forces the employer to pay more, thus shifting the “subsidy” from taxpayers to employers.

So if you raise the minimum wage who consumes more and who consumes less? Is it different in the long term than the short term? Who are the employers (the stock holders, the Waltons, The executives, those who shop at Walmart)? It is not so simple of a question.

"So if you raise the minimum wage who consumes more and who consumes less?"

If you raise the minimum wage, employers cut back on labor to some extent and raise prices to another extent. The employers will use some form of automation, outsourcing or procedural changes to lower their labor content.

"Although an argument that raising the Minimum would have little or no effect on unemployment could be convincing."

If the minimum wage is relatively low that labor substitution is small. If you raise minimum wage sufficiently, you will have significant increased unemployment.

A world with a $8/hour minimum wage and a $3/hour EITC will have a different labor force than a world with no EITC and a $11/hour minimum wage.

There are some people who get hired in world #1 who don't get hired in world #2.

Agreed and also you would expect to see the workers making $8 in world #1 to work longer hours. Restaurants typically respond to hikes in wages by cutting the length of the shift versus firing employees.

How did those people get hired before there was an EITC? We used to live in your world #2 within living memory, and unemployment was at reasonable levels.

And the employers take a partial haircut on their profits. Their profits are not static, set in stone.

And the profits come out of people's earnings in their 401(k) plans.

Thank you. When it comes to price increases some people act like companies have to always make the exact same amount of profit otherwise they will instantly shut down.

The corporate subsidy is apparent if you ask the following: what would be the alternative: higher minimum wages. Also, if you believed that the existence of benefits, being taxed, in effect, at a higher marginal rate if wages are increased, deters job switching to a higher paying job, where is the evidence to support that claim. People continue to switch to higher paying jobs.

"The corporate subsidy is apparent..."

There is no subsidy. At best you could say businesses might receive an indirect benefit. A subsidy is explicitly a direct benefit.

You are assuming that if your wages were cut to $2 per day, you would make out just fine because you would simply cut your rent, food, gasoline, car payments to under $60 per month.

And you can't understand why all workers simply do not do the same, but instead go on welfare.


In the "Rust Belt"?, sure . . . i dumped Walmart to work at Stewart's . . . outside of Academia, the area is in John Steinbeck's 'Grapes of Wrath'. Declining tax-base with increasing taxes for existing property owners. 1960's lens doesn't work here ~John Galbraith

got a home in the rust belt? paid for with no mortgage left? see who will buy it before tax liabilities eat your equity up? gambling use to be illegal in these parts, until the State and lotteries got into the game to pay for State Employee pensions . . . which nobody else gets.

race to the bottom? aye, yet taxing people out of their homes benefits who?

you don't own property in the 'rust belt'. you rent it from the State, and youe taxes are going up every year.

Do the people that claim corporations benefit from labor income subsidies agree that corporations pay labor income taxes? If not are these people hypocrites or too stupid to understand basic calculus and elasticities?

If the government labor taxes increased would Wal-Mart not have to pay a higher wage such that after tax wages remain at their current minimum survival level?

declining neighborhood, tax base selling and leaving, you'd think your property taxes (for having the audacity of owning something) would reflect that? Nope . . . Is a race to the bottom, ghost towns.

"This is unfortunate because such subsidies would incentivize firms to hire more low-income workers."

According to reports, the vast majority of workers hired in this recovery are low income workers, and those low income workers are responsible for the huge increases in welfare costs that conservatives have been screaming about and demanding that be cut by forcing the poor to get a job, and be forced to take any job no matter how low the wages are, because unless they take a job, even a job that can't pay the costs of going to the job, welfare benefits will be cut off.

EITC is cut off unless you take a job, any job.
Food stamps are cut off in a number of places unless you take a job.

The only way to get childcare assistance is by taking a job, and if you take a job that pays $200 while the childcare costs $300, you do that because earning $200 gets you $300 in free childcare, food stamps, Medicaid, housing assistance, EITC, etc.

Do not take the $200 job and thus save the government $300, that fiscal prudence means you lose food stamps, Medicaid, housing assistance, EITC.

The author clearly has not bothered to listen to conservatives about how welfare should and must work - you get welfare only by working even if the job pays a wage so low that even conservatives agree requires getting welfare when they look at each case and at cases that include their kid struggling to raise a kid or the cousin and his family.

Not working is a personal and societal catastrophe. Much better to pay someone to work than pay them disability.

Yep, just because someone has ALS is no reason to take away their self-respect by paying them disability before they die, unable to move any part of their body.

Stupid comment. The incidence of ALS and similarly debilitating diseases is very low.

Wouldn't it make more sense to provide *everyone* with a subsistence level of benefits + insurance in place of the minimum wage? That way you eliminate the high marginal tax rate involved with accepting work and giving up benefits, and you put the responsibility for poverty on the government rather than pushing it onto the employer.

Of course that would make more sense, but the left seems to want to punish corporations more than it wants to help the poor. Otherwise you wouldn't see such a disproportionate amount of talk in favor of raising minimum wages vs. other actually helpful programs like increasing the EITC.

If the goal is to have fewer poor people, the solution involves making sure they have access to a small but steady supply of money. It doesn't have to be much but it does have to be reliable. And to avoid means-testing, you would need to give it to everyone -- me, you, Tom Cruise -- either in the form of a tax credit or as a regular infusion, probably weekly.

I wouldn't pay money so my own son could sit at home and play video games. Why would I pay it so someone I don't even know can do it?

Probably it isn't a good idea to model government-citizen relationships on parent-child relationships. But OK, that's a means test -- a person has to qualify for aid by not playing video games, in this case. Now someone has to check about whether the recipient qualifies for the support, and that person won't work for free, which adds to the cost.

I'm suggesting that replacing the minimum wage and assorted other programs (job training, student loans) with a small stream of money provided to all citizens is the most efficient way to end poverty.

The great misconception in these anti-Wal-Mart arguments is the unspoken and taken for granted position that any full-time job must pay enough for one such wage earner to support a family of four above the poverty line anywhere in the United States. I have no idea where that position started, but it seems to be at the root of the "welfare is subsidizing Wal-Mart" position.

Look, if some person isn't earning enough to make ends meet, then they should find a second job, a better paying job, negotiate for better pay, find roommates, sell your nonessential items, shop at Goodwill, move to your parents' basement...and, yes, check out the public and private assistance options. But an employer does not owe every employee that fabled "living wage."

... and sell their kids as well no??? ;)

Can't feed 'em, don't breed 'em.

And if you loose a job you should have to kill any existing children you already have. Or put them in an orphanage. Maybe we could give infertile rich people their pick of children from poor families?

How many people are really in that situation? You want to increase all minimum wage everywhere to deal with those few. And that is insane.

I seem to remember that part of the debate, back in the day, centered around Walmart actually helping their employees apply for public benefits. Anyone know if that continued? If so, it would suggest that Walmart saw value in their own employees being on benefits, and theory should explain why. Without having thought it through, while there may not be a subsidy effect of public benefits compared to a counterfactual of no government programs at all, there may very well be a subsidy effect compared to some other more realistic counterfactual.

EconLog has been making this point lately, government benefits do not subsidize WalMart, and the existence of the welfare state forces WalMart to pay higher wages than they would otherwise. Just think about it from the company's perspective for a moment - why would they want government policies that makes it easier for people to not work at WalMart?

Not the same thing, but what about health care benefits for veterans via the VA? Certain employers seem to be targeting the hiring of veterans since the Affordable Care Act went into effect.

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