Monday, August 09, 2010

On why social safety net programs are a subsidy for employers

At some point in the past, I mentioned that the poor paid a higher percentage of their income as taxes than the rich do. At that point, the babbling began... "but... but... The Tax Foundation! Transfer payments!" At which point I said, "Nonsense. Not only do these people never see the money -- it goes to stores and doctors and such -- but transfer payments like food stamps and Medicaid are welfare for their employers, not for them."

The deal is that we run into the most fundamental Iron Law of Economics here: People will not work for less money than is necessary to provide for their basic survival. They won't. Because if they do, they die. Yet minimum wage here in American is not sufficient, in and of itself, to provide for the basic survival of most of those receiving it -- you simply cannot provide food and shelter for yourself, much less your family, with a 40 hour per week minimum wage job (or, more likely, two 20 hour per week minimum wage jobs). Yet employers are having no problems recruiting sufficient minimum wage workers to keep their doors open. WTF?!

The deal is that these employers are being subsidized. These transfer payments are a subsidy, allowing these employers to pay less than they'd otherwise pay. If not for the transfer payments, these employers would have to raise their wages to a "living wage" -- one that is sufficient for the basic subsistence of their workforce. In short: the modern safety net is welfare for the employers of service workers.

You want to see the perfect example? Wal-Mart. When you go to work for Wal-Mart, you are given directions on how to sign up for Medicaid and food stamps. It is understood that working for Wal-Mart is not sufficient to provide for food and healthcare for you and your family. It's formalized. Without this subsidy, people wouldn't work for Wal-mart, because they couldn't survive.

So anyhow, now you know why, unlike The Tax Foundation, I count programs like Medicaid and food stamps as transfer payments to employers, food stores, and doctors, not transfer payments to the poor who never actually see the money. 'Nuff said on that one...

-- Badtux the Economics Penguin


  1. Well, thank God you said that! All this time I thought maybe I was just hopelessly stupid for having that opinion.

  2. Thank you BadTux. Before I had the kid I worked minimum wage jobs, but the ones with uniforms provided were the ones I kept. My survival depended on it.

  3. The tax foundation is a bunch of god damned liars, just like the Heritage foundation.


  4. Well, yes and no, JzB. The underlying data that they use is generally correct, and they generally do document the "corrections" (a.k.a. "fudge factors to make the data say what I want it to say") that they apply to it, so that you *can* arrive back at the un-fudged data. That's what I used in the original comment about how the poor pay a higher percentage of their income than the rich do -- took the Tax Foundation's numbers, un-applied the "fudge factor", and arrived at the plain unvarnished truth. But you are absolutely correct that if you're simply looking at numbers on the Tax Foundation's web site, you're looking at numbers that have been so heavily spun and fudged that they're pretty much useless for making any statement other than, "The Tax Foundation is a bunch of liars" :).

    -- Badtux the Statistical Penguin

  5. Oh, so now you're against a good, honest American company like Wal-Mart which provides thousands of jobs to hard-working Americans? I suppose we should just buy everything from China instead, huh?

    What's that?


    Never mind.

  6. Then the subsidy allows the employers to hire more workers then they could otherwise, which is a good thing.

    But it's an interesting take - never thought about it that way.


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