Re a previous post talking about 10% of Amazon’s workers in Ohio getting SNAP – the same as the incidence of SNAP among the general workforce in Ohio.
This isn’t a subsidy to Amazon. Benefits which are paid whether you are working or not are not subsidies to employers. Quite the opposite in fact, they raise the reservation wage.
Think it through. I work not at all, I get some money/food/shelter. Therefore going to work must pay me more than the value of the things I already get. In the entire absence of any welfare state some would work for $1 an hour (hmm, mebbe). Employers must pay me more than what I get without working therefore.
Welfare that I get *only* because I am working might be such a subsidy to the employer. So, working tax credits (EITC to Americans) could be an employer subsidy. As it happens we think they’re about 30% a subsidy to employers, 70% to the workers. Which is fine actually, as working tax credits are meant to be a subsidy to the employment of low skill workers.
But food stamps, Section 8 and so on are not. Because you can indeed get them without working at all. In fact, you get more of them without work (the rules for single able bodied no dependents adults are stricter). Thus they raise wages that must be paid, not lower them.
Or, as the thoroughly left wing Arindrajit Dube (himself a researcher into the minimum wage) puts it:
A final line of argument is that these public assistance programs have become de-facto subsidies for low-wage employers. For a program to be a subsidy for an employer, it needs to lower wages. Is this plausible for the public assistance programs considered? I think it is for the EITC, but not for other programs. Depending on where one is on the EITC schedule, that policy can increase work incentives. And there is a lot of empirical evidence showing EITC encourages labor force participation. An unintended consequence of that labor supply response, however, is that employers capture some of the tax subsidies. This can happen in a simple supply and demand framework, where an increased labor supply to the market drive wages down. This can also happen in a bargaining context where the size of the bilateral surplus expands from lower taxes, and employers capture some of this increased surplus. Work by UC Berkeley’s Jesse Rothstein suggests that for every $1 of transfer to workers using the EITC, post-tax income rises only by $0.73 because of employer capture.
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.