According to New York Mayor Bill De Blasio, “If we’re subsidizing companies, we have every right to demand a living wage for the people they pay.” He’s referring to conventional Democratic Party wisdom that taxpayers subsidize Walmart and other large low-wage employers by providing employees with food stamps, health care, and other public assistance. For example, in May 2013 the House Democrats released a report, estimating that a single 300-person Walmart Supercenter in Wisconsin costs taxpayers between $900,000 up to $1,700,000 a year, or about $5,815 per employee.
In one sense, taxpayers “subsidize” Walmart in that they provide benefits that in fairness Walmart should provide. But in the sense of actually increasing Walmart’s profits, it’s the other way around. Public benefits to employees actually cost Walmart money. How so? The greater the resources workers have outside of wages, the more companies must pay. This isn’t due to union pressure, but just the way labor markets work.
A decline in the number of workers while the number of jobs stays the same or increases—that should mean higher wages
Imagine, for example, that you’re a low-wage worker with a full-time job. You’re trying to decide whether to volunteer for overtime or to look for a second part-time job. Then you find you’re qualified for, say, additional food stamp benefits. So forget the overtime or the second job. The higher the outside benefits, the more some workers will choose to work less, or even not at all. Multiply this effect by millions of workers, and, by simple supply and demand, wages must go up.
Conservatives have long used the first half of this story to argue against benefits to the poor, such as “Welfare as we knew it” or today, unemployment insurance. As Adam Smith’s contemporary Arthur Young (1741-1820) rather crudely put it in 1771, “Everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious.”
A number of controlled experiments over the years seem to confirm what only idiots didn’t know. For example, the Canadian Mincome project in the 1970s granted low-income recipients a guaranteed basic income over five years. Working hours dropped on average 1 percent for men, more for women. But, as reported in a 2011 analysis, it was primarily mothers with new babies and teenagers who worked less. More teenagers graduated from high school, and achieved higher test scores. Only hearts of stone would see this result as a failure.
By the same logic, the Affordable Care Act should raise wages—by making it easier for some beneficiaries to cut back hours or drop out altogether. People like mothers with small children, or students, or workers in poor health, or close to retirement. That’s a good thing.
Surprise! The Congressional Budget Office (CBO) just released a report projecting “a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024” due to the Affordable Care Act. The report emphasizes this decline is due almost entirely to workers voluntarily deciding to work less, not a decline in jobs offered. The report also notes that improved health may also make some workers more productive. Moreover, there will be increased demand for goods and services, leading some employers to increase hiring. So although CBO doesn’t say so, a decline in workers while jobs stay the same or increase—that should mean higher wages for the remaining workers. Good news, right?
The modern descendants of Arthur Young are going buggy.
Quoth John Boehner, “The middle class is getting squeezed in this economy, and this CBO report confirms that Obamacare is making it worse.” Screams the Fox News headline, “ObamaCare could lead to loss of 2.3 million US jobs.” Mayor DeBlasio and other good Democrats may not understand how public benefits raise wages, but their opponents sure do. Here’s the true wellspring of the venomous opposition to the Affordable Care Act: the lower classes must be kept poor!
Polly Cleveland is Adjunct Professor of Environmental Economics at Columbia University School of International and Public Affairs. This originally appeared in different form in Dollars & Sense.