Does the government subsidize low-wage employers? | Brookings Institution

Does the government subsidize low-wage employers? | Brookings Institution

.many readers interpreted the government aid dollars to represent a subsidy to low-wage employers (for example, here,here, and here). According to this view, government assistance to low-income families constitutes a handout to Walmart, McDonalds, and other low-wage employers. The assistance allows these companies to pay their workers lower wages than would be possible in the absence of the government aid.

For the majority of programs analyzed by the Berkeley researchers, this interpretation of government assistance payments is flatly wrong. Instead of subsidizing low-wage employers, most assistance programs reduce the availability of low-skill adults who are willing to work for low pay and lousy benefits. By shrinking the pool of workers willing to take the worst jobs, the programs tend to push up rather than push down wages at the bottom of the pay scale. Low-wage employers do not receive an indirect subsidy from the programs. Many must pay somewhat higher wages or recruit more intensively to fill their job vacancies.

The public programs singled out in the Berkeley report are aimed at improving the health care access, nutrition, and net incomes of the nation’s most disadvantaged families. Three of the programs provide more assistance to nonworking Americans and their dependents than to families containing a working breadwinner. It is hard to see how this kind of program can be said to provide a subsidy to low-wage employers. Two programs that restrict benefit payments to working breadwinners—EITC and daycare subsidies—surely succeed in improving the net incomes of working but struggling parents. Indirectly the two programs increase the supply of low-wage workers, putting some downward pressure on wages. Labeling these programs as “subsidies” to low-wage employers has some merit, but it fundamentally misrepresents the distribution of benefits conferred by the programs. The main effect of the subsidies is to lift the net incomes of the working families that receive them.