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Anorak | Do Benefits Benefit The Workers Or The Employers Paying Scummy Wages?

Do Benefits Benefit The Workers Or The Employers Paying Scummy Wages?

by | 27th, February 2014

THERE’S an argument around and about the place that paying benefits to poor people just ends up as a subsidy to the people who pay them scummy wages. The argument being that as the taxpayer is picking up part of the bill of keeping body and soul together then the employer can get away with paying peanuts.

To which my usual response has always been, well, great, let’s abolish all benefits then and see whether wages rise.

However, I’ve rather changed my mind as a result of this point :

As long as non-workers remain eligible for poverty programs, the answer is no. This is basic supply-and-demand. When the government offers free stuff to people with low incomes, the marginal benefit of work falls and so does labor supply. When labor supply falls, hours of work go down, and wages rise. This could be very nice from the point of view of Walmart’s workers. From the point of view of Walmart’s stockholders however, it’s bad.

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.

I hadn’t thought of it that way

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Posted: 27th, February 2014 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink