1. We subsidize low-paying employers through welfare programs like food stamps, Medicaid, and housing assistance. Corporations like McDonald's and Walmart take advantage of these programs by paying lower wages to their employees, collecting more profit, while the rest of us make up the difference.
2. A person who receives food, medical, and housing assistance is less inclined to work to earn money to pay for these goods and services. Therefore, McDonald's and Walmart must pay higher wages than they would absent the welfare services to induce such people to work, reducing corporate profits.
Which is true?
Ok, I'll bite. I believe that both are likely true. These are two opposing forces, and they reality is that wages probably reflect the influence of both.
That being said, there are probably other forces at work, which likely include the quality of the work experience, the accessibility of the benefits, and social views regarding the assistance and the employers.
Hm, I was thinking of it more like an either/or. Suppose I phrased it as a true/false question:
Government-provided welfare services like food, medical and housing assistance enable employers to pay lower wages.
If the existence of the welfare programs pushes wages in both directions, could you explain the mechanism on each side? I did that a bit for #2: people need to pay for housing and health and food, "the money has to come from somewhere," if some of it comes from the government, it doesn't have to come so much from work, so people are less inclined to work, so employers have to make working more attractive, ergo higher wages.
Score, I have some time for thinking! Pretty tired of doing.
- Government-provided welfare services like food, medical and housing assistance enable employers to pay lower wages.
True, I say. I would argue the same points that I'm sure you've heard elsewhere, but that's beating a dead horse.
- ...people need to pay for housing and health and food, "the money has to come from somewhere," if some of it comes from the government, it doesn't have to come so much from work, so people are less inclined to work, so employers have to make working more attractive, ergo higher wages.
No, I think employers aren't at all compelled to raise wages.
From a simple supply and demand standpoint, we still have fewer jobs than workers looking for hire. This, in tandem with the federally-mandated minimum wage offered to labor by a large number of huge corporations, effectively cripples any competition in the unskilled labor market. I think that almost all of these businesses would immediately offer lower wages the day that federal law permitted, continuing the lack of competition.
Costco and other notable U.S. examples aside, there are tens of millions (vague number, sorry) of positions where people are making either exactly the minimum wage or one to two dollars more. Some smaller business contribute with minimum/low wage positions, but I'm claiming that the huge corporations are steering the market. You also have the highest turnover of positions at the minimum wage level from workers who are unfit for labor (or aren't "meeting expectations", for whatever reason) and thus cannot hold a job. So there is a relatively large pool of workers looking for any job they can find, and I definitely think that this translates into pushing the wages offered for the vast majority of unskilled labor positions right into the minimum wage floor.
This entire process is somewhat economically ironic, because from a bookkeeping viewpoint, corporations have spent a lot of money to support the liquidity of their workforce. But many applicants that pass screening aren't fit for labor, which couples back into the original turnover issue.
Now for the welfare part...
I'm taking a pessimistic view of humanity as a whole, once again, and this may be perceived as a cop out. There are a lot of people unfit for the grand pinnacle of Western civilization; the 40 (or more) hour work week. All have their various reasons, be it physical health, mental health, lack of education, lack of motivation, etc., and I'm not going to speculate on any numbers. No one likes to talk about this, ever.
I know I'm probably preaching to the choir, but I'll hammer this out anyway. The current minimum wage isn't quite a "living" wage, if you ask me. $7.50/hr. at 40 hours/week works out to be $15,600 annually, and unpaid leave takes the annual earnings down even further. In 2015 $'s, I would say that a living wage is somewhere around $25k/year, which translates back to around $12.25/hr., and those definitely aren't the same dollars in my town vs. Silicon Valley. Yet another obstacle for a federally mandated minimum wage standard; scaling for local cost of living, if we decide to go down that route.
Oh, did I mention healthcare? No, because I pretended that we were all fairly efficient machines in the eyes capital. So that's another can of worms.
The inequality of income that we are perpetuating with political policy could help solve all of these problems, but that's not uncomplicated either.
OK, time to go to bed, because I'm actually human sometimes.
Thanks! I must respond a paragraph at a time.
- From a simple supply and demand standpoint, we still have fewer jobs than workers looking for hire.
I disagree: you ignore price, one axis of a supply or demand chart.
From a worker's perspective, income opportunities exhibit scarcity: you can't just collect as much income as you want while sitting around. And you only have so much time and energy you can offer to employers.
From an employer's perspective, employees exhibit scarcity: you can't just employ as much labor as you want to use; you are limited by your salary budget.
The supply and demand curves should intersect at a market equilibrium which establishes the price, just as they do for coffee or gasoline.
(Aside: I often see the idea expressed that one party can set prices, such as greedy airlines charging baggage fees, or airport bars setting high prices for drinks. People can ask any price they like, but the market price is determined by completed sales, which require agreement from both sides.)
I think of a job as a person selling their time, energy and talent. The employer is a customer of the worker. There are differences between being a customer of an airline, of a coffee shop, of a cell phone carrier, of a piano tutor, and of an engineer, but not differences that I see changing the economic fundamentals.
If prices (in the job market: wages) go down, there will be increased demand from employers, meaning a greater number of paid hours worked: more jobs. If prices (wages) go up, there will be reduced demand for labor, meaning fewer paid hours, and more demand for labor substitutes, like automation. This is the adverse outcome of higher minimum wage. [Edit: on reflection, this paragraph is sloppy. A change in price is the result of a change in demand, supply, or both. Lower prices could reflect greater supply (leading to greater volume) or reduced demand (and reduced volume).]
- This, in tandem with the federally-mandated minimum wage offered to labor by a large number of huge corporations, effectively cripples any competition in the unskilled labor market.
I agree that minimum wage distorts the labor market. It creates a surplus of workers who cannot sell their labor because it is overpriced. Workers cannot "compete on price" so there is always a line at the door.
It may be unpleasant to imagine sellers of labor competing in a "salary war" though we love nothing more than a price war among sellers of mattresses or laptops. But it is far from obvious to me that one worker getting a high salary is better than two workers splitting that same salary.
I still browse this thread because it's one of my favorites to think about; you can imagine my astonishment at 'comment 47 minutes ago'.
- Costco and other notable U.S. examples aside, there are tens of millions (vague number, sorry) of positions where people are making either exactly the minimum wage or one to two dollars more.
I'll turn your vague number into a real one, like magic -- 35 million. "29.4 percent of workers are paid wages that are below or equal to 150 percent of the minimum wage in their state." That is, under 12 to 15 dollars. Whether that number is an argument for or against the minimum wage increase is an open question.
This little paper is a must-read, if only to inject some facts into a generally fact-free debate topic.
Thanks for the data points. Maybe I should reconsider my belief that "A minimum hourly wage of $7 or 8 is too low to do much harm."
I do agree that the minimum wage has an anchoring effect, creating a sort of baseline from which negotiation begins for work at the lower end of the legal wage range, so a bump could affect wages a little above the minimum too.
The map suggests (logically enough) that the 35 million workers included in the 101% to 150% range are more concentrated in states that have a higher minimum than the federal $7.25 standard, so a hike in the federal minimum wouldn't necessarily affect them if those states do not also raise their rates.
And it's worth emphasizing that the authors of that little paper "set aside the important issue of potential employment effects, which is another crucial element in the debate." The standard economic objection to minimum wage is precisely the employment effects.
- Thanks for the data points. Maybe I should reconsider my belief that "A minimum hourly wage of $7 or 8 is too low to do much harm."
That's definitely one interpretation.
forwardslash, I didn't get a notification here, been happening a lot lately. Hellllllllllp
Are you getting them now? I did corrupt user data for most of the day today, so user profiles weren't saving.
Thanks for the thoughtful responses.
I believe that the narrative in mk's comment is incorrect, the idea that government welfare programs allow low-paying employers like Walmart and McDonald's to pay lower salaries, because their employees "don't need" as much income.
The idea wasn't immediately suspicious to me, but looking at it from the other point of view did make me wonder: "I was thinking about working for Walmart, but then I started receiving government welfare benefits; now I don't need the income from Walmart so much."
I believe that outside sources of wealth (be they welfare programs, lottery winnings, gifts, or something else) reduce a person's inclination to work, and employers must therefore "sweeten the deal" somehow to get potential employees on board.
If people who need income less worked for less, we would expect to see wealthier people accepting lower salaries. And very poor and hungry people who need income more would insist on high salaries. This is the reverse of what we actually see.
Bryan Caplan provides a perspective in How Welfare Hurts Walmart:
- ...Not convinced? Ask yourself: "If I ran Walmart, would I favor higher unemployment benefits?" Of course not. Why not? Because higher unemployment benefits make it easier to not apply for a job at Walmart. The same goes for any government program that makes idleness less unpalatable.
Elsewhere on the political spectrum, Arindrajit Dube (a supporter of minimum wage) argues in Public Assistance, Private Subsidies and Low Wage Jobs that "means tested public assistance programs are not tied to work, and we should not expect them to lower wages." He wonders whether such benefits actually raise wages, or merely cause people to work fewer hours, but both are consistent with reduced willingness of beneficiaries to work at a given salary, and "if they don’t lower wages, they can’t be thought of as subsidies to low wage employers."
We should remember that the decision to work or not does not depend solely on the salary; it depends on how attractive the next-best alternative is that the person will give up by going to work: the opportunity cost of employment. Thus we can't judge that $7.25 per hour is not "worth any adult's time" if we don't know what they will do otherwise.
"The most commonly cited reasons for using Mechanical Turk are to earn some extra spending money and productively use time that would otherwise be wasted watching television."
1 is clearly true.
2 is not true, seems to me. Employers ARE taking advantage of assistance programs to lower wages; these programs do not seem cause employers to raise wages at all, ever, as far as I can tell.
It should be noted that, in the United States, eligibility for food, medical and housing benefits does not depend on employment status; with some exceptions (e.g. for able-bodied adults aged 18-50 without dependents) people can receive benefits whether they work or not.
- 1 is clearly true
If there were no welfare benefits, Walmart would pay some average salary. When welfare benefits are introduced, #1 says that Walmart will start paying lower salaries. This suggests that if additional benefits are added, perhaps basic income or more generous assistance, salaries will go down even more. If we extend this thought experiment, at some point welfare benefits will pay for all of a person's needs, and they will continue working at Walmart for free! This doesn't make sense.
I don't understand how the thought experiment ends with The government covering all cost and Walmart paying little to nothing for employment.
There is defined limit on cost of living and I would't see it change if a company payed a wage that provides above that line.
Would you mind explaining more?
Sure. This is the hypothesis we want to test:
When government provides benefits to workers, employers actually collect the value by paying lower salaries.
So let's start by imagining a case where there are no government benefits. The employee works at Walmart for a salary of, say, $2000 per month.
Now we introduce a government benefit worth $500 per month (to keep it simple, let's say it is a cash benefit). The employee now enjoys $2500 worth of income and life is better. But according to our hypothesis, Walmart takes advantage of the situation by lowering the monthly salary to $1500.
Now it appears that the worker's situation is not changed from the start. While doing the same work the worker receives the same $2000 in income. Walmart has absorbed the benefit, and now pays only $1500 for work that is worth at least $2000. The worker has the same job and the same lifestyle.
Then an additional $500 government benefit is introduced. Again, Walmart takes advantage by lowering the salary to $1000. The worker is indifferent about where the money comes from, and continues doing the same work and living with the same lifestyle.
Two more government benefits and the worker's entire income comes from the government and Walmart has reduced the salary to zero, absorbing the entire value of the benefits. Obviously at this point it no longer makes sense for the employee to continue working.
I conclude that, contrary to our hypothesis, the employer cannot take the entire value of a government benefit out of a worker's salary.
It's not a very realistic scenario, but it does suggest that something will happen if the employer tries to lower salaries when an employee receives outside income. What I think will happen is that Target will see that Walmart is getting a great deal, paying $1500 for $2000 worth of work, and will offer the worker $1600 to do a similar job. Assuming there is competition in the market, the worker should be able to bid their salary up to something close to what it is worth. That is how the worker got a job paying $2000 to start with, and the employer's accounting does not change when the worker receives outside income.
This discussion got to be pretty extended, but the big idea I got was that when government (or a wealthy uncle) covers some of your living costs, you have less incentive to work for income. Employers have to make you a better offer before you will find it acceptable.
The amount an employer is willing to pay for a worker is entirely based on how much value the worker can provide to the employer. The employer doesn't care how much wealth the worker and others in their household have.
Hm, I see that my phrasing makes it hard for me to understand what you are saying is true. There are three clauses in #1:
· 1a. We [taxpayers] subsidize employers.
· 1b. Employers take advantage by paying lower wages [than they would if the welfare programs did not exist].
· 1c. The rest of us make up the difference.
Which, may I ask, of these three are true? (1c is mostly rhetorical.)
- I think 1b because it seems to corroborate with things I've read insofar as I can remember them
When I saw the idea that "we subsidize corporations" before, it didn't strike me as obviously wrong. I think I would have imagined a Walmart manager saying "Our workers get all these benefits, so they can survive on less salary, so we can pay them less and profit." But when I look at it from the employee's point of view I see a different picture: "I get all these benefits; I can survive with less salary; why should I work at Walmart?"
- Do most people see these resources as benefits to rely on permanently, or as a stop-gap, non-ideal fix to a problem they hope to solve? I know that people can be entirely serious and convinced and believe either of those options. What do you think?
- Is it possible to truly survive only on gov't subsidies on a permanent basis? Does it require a disability or other similar status?
-if it is not possible, then despite these benefits, a person must work. Even if it is possible some people would like to do more than survive(maybe propagate for instance). They too must work. One assumes if they do not feel they need much more significant income, then they would lowball their jobs. What could someone choose that actually pays less than McDonald's and Walmart? What employment could a person choose as "more preferable to them" because they are making enough money off of benefits that they could afford to work for less than McDonald's/Walmarts wage? Would that employment actually be better than working at those places?
All interesting, and complex, questions. I don't think I have any special insight, and my answers to the first two would be "non-ideal fix," "probably possible to merely survive, but not much more."
For the purpose of this quiz (as I intended it) the question is whether outside sources of wealth make a given income opportunity more or less attractive.
- One assumes if they do not feel they need much more significant income, then they would lowball their jobs.
On the other end, do the world's most desperately poor people hold out for executive salaries, or take whatever they can get?
- What could someone choose that actually pays less than McDonald's and Walmart?
1) Sorry for the late reply.
2) Is the independently wealthy person likely to choose work over other uses of time, say, volunteering? For the purposes of this discussion are we narrowing down the "independently wealthy" extreme to "only the independently wealthy who still want to work regular (if part-time), paying jobs"? In addition, though, what does the independently wealthy person have to do with whether or not we subsidize McDonald's wages? The rich person does not need or use those benefits, so that's not why they may choose to "lowball" their career options and work at McD's. I had interpreted your original line of questioning as driving at whether or not we, as taxpayers, subsidize others via public health (etc) benefits, thereby allowing McD's to pay low wages, and also allowing those who use such benefits to accept jobs at McD's that would otherwise be untenable from a monetary perspective. So, while the independently wealthy do still subsizie these benefits like the rest of us, they're not relying on those (one assumes) in order to make the McD's salary "liveable." I guess I took your quiz to be a little more politically minded than you intended!
3) I think, though, we should pause and consider the vast degree of difference likely to exist between the independently wealthy and the desperately poor currently reliant on benefits. The independently wealthy not only can afford to pass on a job offer, but they also have significantly more potential job offers and opportunities in front of them by dint of social station, probably education, money, etc. For instance if I were independently wealthy and decided I wanted to be a radio DJ one day, I could wait and try to find a job as one. Or I could go buy a radio station. The independently wealthy have the power to basically create the jobs they want for themselves.
I know very few people who went into wedding planning after they graduated college but I think I can say with confidence that none of them were raised in poverty or impoverished as a result of their career choice. Not because they were successful, but because you don't fucking graduate college - or graduate/drop out of high school - need money, and think "Oh! I'll just fulfill my dream of being a wedding designer!" The rich are able to dream.
Baby-sitting is often tax-free cold hard cash under the table. It may or may not be reliable but if I were poor, knowing I had hard cash in my hands after every job (or every week if recurring etc) with no taxes taken out, no bankman who could touch it, that might be preferable to McD's. Takehome might be comparable or more, depending on the area and accounting for that. I bet that babysitters on average make around or even more than minimum wage. - I think it could be psychological even. Do you want to hire the babysitter who charges $7/hour or $10/hour? Do you really want to leave your baby with the cut-rate hack? We see price and we think it means quality.
Anyway, so I respond to this comment because I'm going to tie back to this thread. One of the benefits that it struck me one would have working at McD's or Walmart or similar is that these are all gigantic nation-wide corporations. That means that they have formal structures, policies, procedures, etc in place - there will be a set advancement structure. There is an HR hotline for sexual assault complaints. They probably have certain programs designed to "train young managers" or whatever. Companies that operate on a large scale are machines - but I think that can be a giant benefit. If I walk into a McD's and am hired, I would feel I could trust that it will be a relatively prepared and OK working environment where I will probably be safe and paid on time. And if that's not the case, that there will be resources for me that will in general help me get what I deserve, or am owed, or so on.
If I walk into a bodega, though, there is no corporate structure, no guarantee of any sort of premise of professionalism, no guarantee the owner knows how to do insurance or taxes right, no guarantee he's not going to do something shady like say I'm a contractor and short me on my insurance, and so on.
I actually prefer working for big banks over small banks. Big banks just simply have things much more streamlined and hammered out. For instance if I want to know my work cell phone policy, or my corporate card policy, or my days off policy, or my 401k, or how my bonus will be taxed, or basically anything that I as a worker might care about because it impacts me, I can find it probably within 3 clicks. I can identify potential career paths. I can post to other locations or positions internally.
So ThatsAFreeThinker, I would say: consider the lobster. By which I mean that yes, a company might be large and villified and even rightly (working at Comcast doesn't have to be awful but if you're on the phones it will be; I had a lot of friends do it - they actually turned me down) but HOWEVER, there is a certain assurance that basics will be met and readily available; that you will not be the first employee to ever ask any question; that you'll never experience "a funny situation in Payroll" because the lady had never had anyone ask to split their direct deposit between 2 bank accounts before, or etc.
I would be MORE assured taking a job at McD's, because of these things, than a no-name pop-up bodega or fast-food restaurant. With McD's, I can trust there's a corporate for me to turn to. With a no-name mom-and-pop, they really could get out of dodge and fuck me and the 3 paychecks they owe me if they wanted. McD's also can probably offer opportunities a small business can't - like different locations, more upward potential, etc.
Anyway, those have been my marinating thoughts that I was brought back to by the other thread.
EDIT: This is the first post for which I have used the draft function as intended. It was very convenient. No, I did not write this all in the 10 minutes between this and my last Hubski post. Half of it went into words-on-internet yesterday, and that was mad convenient.
1) Thanks for the thoughtful reply!
2)
- Is the independently wealthy person likely to choose work over other uses of time, say, volunteering?
Probably not, it’s less likely. Outside income, regardless of the source, makes a person less likely to see going to work as a good use of time, and more likely to choose volunteering, hobbies, or television. People who receive outside income need additional incentive to work, compared to those who don’t. Imagine how much you would have to offer the wealthy person to get them to report to the office, instead of participating in satisfying volunteer activities.
- whether or not we, as taxpayers, subsidize others via public health (etc) benefits, thereby allowing McD's to pay low wages, and also allowing those who use such benefits to accept jobs at McD's that would otherwise be untenable from a monetary perspective
I think the word “allow” is key here. People do not do something because it is merely possible, because they won’t starve by doing it; they choose the alternative that they judge will best satisfy their desires. If their desire for a warm bed is already met, it reduces their desire to perform work to get money to pay for a warm bed.
3)
- The independently wealthy not only can afford to pass on a job offer
Exactly. Someone must accept a low salary in order for it to be a low-paying job. Outside benefits make a person more comfortable, and give them the luxury of being more selective in their employment. Almost everyone will work if the alternative is homelessness and hunger. If the alternative is unemployment with basic housing with basic food, some people will take that option (or at least quit their second job), and employers will have to make better offers to attract employees.
I had a sleepy nighttime lightbulb.
If we are going to argue that gov't benefits allow employers to pay lower wages because citizens are being subsidized, couldn't we make a similar and fun argument that the ready availability of consumer lines of credit (credit cards, helocs, heck even ODP-LOCs, and let's not even look at other, less savory lending options like payday loans) also allow employers to pay lower wages than their employees can truly live on? At least temporarily - really depends on how the math plays out, how much credit, minimum payments and so on, so let's just go back to 2007 when everyone could get shit tons of credit if they crossed their legs and smiled.
When credit is readily available and in large quantities to the average consumer, he or she is enabled to live beyond their actual monetary-hard-earned-cash means. Depending on how one does it, one could rely on a (not-insignificant) credit line on a regular basis to supplement and/or fill dietary needs, purchase clothes, and in other ways fulfill the basic needs of a person or family unit. As long as one is making at least the minimum payment, and we could even be generous and assume that sometimes one pays extra, regular, long-term/sustained use of credit to supplement income (supplement though - only supplement) is quite possible and does allow the average consumer to live outside/above their technical means (minimum payments are generally a fraction of the line balance unless you barely owe anything on the line; so long as the min pay remains less than the amount of credit used each month, which is possible without necessarily forcing the balance to balloon up to/past the credit allowance on a short-term time frame - IF you are not using the credit rashly, which you wouldn't if you're using it for those extra groceries you need but debit just can't swing this month) as provided by their employer.
So really, what I'm saying is, let's blame the banks.
JK JK JK, lots of factors including consumerist culture, but let me know what you think of this thought. Am I crazy? Can't widely available and universally accepted credit also be considered a mechanism which does, in a sneaky way, allow for employers to pay lower wages?
Wanna dig up some historical data of wage rates during credit booms and see whether any, especially low-income or low-barrier-to-employment, pay rates were impacted in any way? Could be fun to take a look. Maybe I'm just nuts.
But hey, if we are going to argue that getting things for free or reduced price subsidizes lower rates, then we do have to admit that credit enables that readily. And credit is real easy for most people to get.
Credit: Buy Now, Pay Later.
Read it twice, see what you're driving at.
2) - Maslow's hierarchy, yup. However it's not like most humans' list of wants stops - ever. Right? Sure, I have a warm bed and I don't need to buy another one, but I sure would like a new iPhone, or laptop, or whatever. As the list goes on yes the desires must get less essential and more frivolous and eventually, it's likely a given person would reach a point at which they felt they had achieved enough even if they never did get that unicorn birthday party that costs $100k, and they can stop/maintain at the current level of income. But I don't think that stops at a warm bed. I think our society encourages us to want more, to earn more, to buy more. So just because even the vital tiers of the hierarchy might be met and satisfied by benefits, I do think people generally have an innate desire for 'more' that's also amplified by social conditioning.
3) I kind of feel that we are assuming that the impoverished who rely on gov't benefits don't have other debts or bills, like child support, legal issues, payday loans or other "non-vital" lending obligations (like credit cards). Article Basically I just don't think that the level of benefits we currently offer is significant and wide enough in order to do much except slap an off-brand bandaid on wounds that are range from "moderate" to "gushing."
I am fine with the idea of basic income, or basic housing and basic food, for each person. But - and I admit I say this without much hard numerical concept of unemployment payments, food stamps, etc - I think that these benefits often add only barely enough for struggling people and families to make it by.
Aren't there things like teenagers ready and waiting to swoop in for these vacated second jobs? A teenager generally is still a dependent and their income can be both much lower than an independent adult and can consist mostly of discretionary funds (variable, of course). I think this is dissimilar from an independently wealthy adult because of the situation - a teen has no workforce experience, so their potential jobs will be on the menial end. A teen has no work experience and therefore probably lowered standards. Etc. We could also talk about retirees who work to supplement savings etc but I think that gets closer to "independently wealthy individual" than what I am driving at here.
FWIW I am for benefits, basic housing, basic food, free and available schooling, etc, for all. But the fact that benefits might allow someone to quit a second job doesn't equate to me as occupational movement. Employer 1 can keep paying exactly what he was before. Employer 2 simply has to find someone who is willing to accept less than "enough money to feed, clothe, and maybe pay bills for" an independent unit, whether that be one person, a person with a child, whatever.
To be honest while I enjoy this conversation I mostly feel like I am fumbling around in it.
You mention many things that can influence a person's employment decisions: their desire to earn ever more, outside debts, legal issues, difficulty making ends meet, teenagers ready to accept the job offers before they do.
To focus on the question of whether a welfare benefit allows low-paying employers to pay employees even lower salaries, I think we have to assume that all these other factors are identical in both cases (with or without the welfare benefit).
All else being equal, does the presence of welfare income influence people toward accepting lower salaries?