Policy: Entitlements

The safety net as corporate welfare

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Beltway Confidential,Timothy P. Carney,Entitlements,Analysis,Corporate Welfare

I believe in a safety net. I think we have a moral obligation to feed the hungry, clothe the naked, and house the homeless. That doesn’t mean I support all federal safety net programs. Often, charity is best handled on a local level or even a voluntary level. One reason: large social safety net programs tend to become one-size-fits-all programs, which can often undermine their intent.

Here’s one example that strikes me as plausible: federal safety net programs end up functioning as wage subsidies for large employers, possibly allowing the large employers to pay less than they would have to pay absent the social safety net program.

When the federal government subsidized low-income housing in Maclenny, Fla., last decade, it made it easier for Wal-Mart to set up a distribution center there — because it made it possible for people to live in Maclenny and work there. When there’s no affordable place to live near a job, people either don’t work there, or need to get paid more the justify the commute.

Possibly related: Jordan Weissmann at the Atlantic riffs off of a suggested budget that McDonalds has published, concluding:

Of course, minimum wage workers aren’t really entirely on their own, especially if they have children. There are programs like food stamps, Medicaid, and the earned income tax credit to help them along. But that’s sort of the point. When large companies make profits by paying their workers unlivable wages, we end up subsidizing their bottom lines.

This is a common charge against large low-paying employers — that they externalize their labor costs to taxpayers. If this is true, is it also true that food stamps and Medicaid drive down wages by allowing employers to pay less? (In this regard, they would work counter to unemployment insurance that could certainly drive up wages.)

Weissmann speculates — and I would guess he is correct — that this only really happens in the case of full employment.

A final note to ward off misunderstanding: Helping McDonalds is not an argument against safety net programs. Helping McDonalds by depressing wages would be a point against such programs, but it may not outweigh the positives.

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