We had some good discussion on this subject. I ended up convinced that when a Walmart worker starts receiving benefits from a rich uncle (be it Uncle Sam or some other relative), that worker is less inclined to continue working at Walmart; if Walmart responds with any change it will be to make the job more attractive, such as raising salary or benefits. How Welfare Hurts Walmart is a short argument from a source you may sympathize with. Public Assistance, Private Subsidies and Low Wage Jobs is a long argument from a minimum wage advocate. Both point out that the Earned Income Tax Credit is an exception: it is a benefit that requires having a job, giving more incentive to work. But other benefits not tied to employment reduce the incentive to work. When people have less incentive to work, employers must sweeten the pot.Wal-Mart is a good example of government making their low prices possible by offering social welfare programs for their workers, which allows their workers to be paid less and still maintain a sustainable lifestyle.
But what about other programs like food stamps or housing assistance? These means tested public assistance programs are not tied to work, and we should not expect them to lower wages. Let’s take food stamps, which are available to eligible families whether or not a family member works or not. Indeed, when people are not working, they are more likely to be eligible for food stamps since their family incomes will be lower. Therefore, SNAP is likely to raise, and not lower a worker’s reservation wages—the fallback position if she loses her job. This will tend to contract labor supply (or improve a worker’s bargaining position), putting an upward pressure on the wage. Whether or not wages are increased is an empirical matter: there is evidence that the initial roll-out of the food stamps program across counties in the 1970s lowered work hours, consistent with an increase in the reservation wage. The key point is that it is difficult to imagine how food stamps would lower wages. And if they don’t lower wages, they can’t be thought of as subsidies to low wage employers.
So I like Caplan's argument that social welfare programs make unemployment more palatable. But his justification of supply and demand ignores social pressures which encourage employment over jobless welfare use. I don't that's an insignificant impact. In fact, I think it's probably one of the main factors in the decision. And if you have a floor amount of money where it is 'worth it' to take a job and dedicate your time to employment, then Wal-Mart benefits from that floor being otherwise occupied by government programs. You can prove this the same way he 'proves' his theorem, which is to ask 'If I was in charge of Wal-Mart, would I encourage a social pressure to take employment even when the pay is not at the level which produces a meaningful wage?' Of course I would, because then I can pay less as the worker gets an less tangible, but very valid, value of respect and participation in the employed labor force. Another example on another end of the employee would be a retiree who takes Social Security. It's available to workers and non-workers, but Wal-Mart wouldn't have access to a group of workers that they prefer to hire in that position (nice old people) if those old people were still working in the job that they otherwise were able to retire from with the aid of social security. The EITC is our greatest hope of a UBI in the near future. And was actually the idea of the EITC in the original Friedman plan, which he called a 'guaranteed income.' There's better sources than that, but his book (which is like Gospel to me) is harder to link.
Caplan might be counting the palatability of public assistance as one of the "other things equal" when comparing the effect of a public benefit on Walmart salaries. I don't know how much of a factor such shame is. - I disagree (though I thought the same way before the Salary Quiz conversation). Say my floor is $2000 per month to work part time at Walmart. Anything less than that is not worth the trouble and I won't work at Walmart at all. Say a new benefit appears that gives me $500 per month. Does my floor now change to $1500? No. It's the same miserable work and I demand the same $2000 to do it. The extra $500 makes me more comfortable than I was before. If I make any change at all, it will be to increase my floor, since I need the income from Walmart a little less now. I think the right way to take palatability into consideration is to estimate a shame cost. If I have to choose between rubbing a magic lantern every month to get $500 or applying for a government benefit for $500, I'll take the lantern. Even if the lantern only gives me $450, I'll choose the lantern. But if the lantern payoff drops to $250, I'll swallow my pride and get on the dole. So what appears to be a $500 public benefit is only worth $250 to me. It is still a benefit, and it still has the effect of increasing my wage floor for working at Walmart. Therefore, if I ask myself "If I was in charge of Wal-Mart, would I encourage a social pressure [against accepting public assistance]..." it's clear that I would encourage such social pressure, because it reduces the value of the "competition" from public benefits. If that pressure is sufficiently large, it will completely eliminate the value of the alternative form of income. Then we are back where we started, before the benefit was introduced, and my wage floor is back to $2000.Some parents, she said, don’t encourage their children academically, and even actively discourage them from doing well, because they view disability as a “source of income,” and think failure will help the family receive a check.
And if you have a floor amount of money where it is 'worth it' to take a job and dedicate your time to employment, then Wal-Mart benefits from that floor being otherwise occupied by government programs.