What About Wage Subsidies?

Oren Cass of the Manhattan Institute has offered an alternative both to the minimum wage and to the trillion dollars that we spend on anti-poverty programs: wage subsidies.

The government would supplement the salary for low-paying jobs so that they would constitute a living wage. But this would allow small businesses to hire more people, rather than less (as would be the case with increasing the minimum wage). And it would make welfare recipients work for their livings, possibly starting them on a path towards upwards mobility. And wage subsidies would cost taxpayers less money than the current ineffective system, while still providing a “safety-net.”

Read the case for wage subsidies after the jump. What do you think of the idea? Can you think of any other creative solutions to these kinds of problems?

From In effort to reduce poverty, wage subsidy worth debating | News OK:

ANY policy proposal that discomfits liberals and conservatives alike (for different reasons, of course) could well be a proposal worth debating.

One such proposal is the wage subsidy. It’s a means of helping Americans in lower-income jobs without the artifice of minimum wage laws. It’s also an alternative to the Earned Income Tax Credit (EITC) and a vehicle for reducing federal outlays for welfare programs.

The flip side is that taxpayers would help pay the wages of some Americans, directly and perpetually. But middle-class Americans who pay most for welfare programs are already paying, indirectly and perpetually.

Middle-class earners don’t generally benefit directly from welfare programs. They’re adversely affected by minimum wage increases that lead to higher prices. They don’t qualify for the EITC.

So if liberals really want to do something about “income inequality” and boost the middle class, they should study the wage subsidy concept. It’s certainly a better approach than the giveaway programs of today and the ones that Democratic presidential candidates want to add to the mix.

We’re not here to endorse the wage subsidy concept. We’re here to endorse the need to find more cost-effective ways to combat poverty and boost the fortunes of people on the low rungs of the socio-economic ladder.

Manhattan Institute senior fellow Oren Cass explored the wage subsidy in a Manhattan Issue Brief released last month. In general, Cass notes, liberals favor minimum wage increases to help the working poor and conservatives favor the EITC approach.

For liberals, he wrote, “embracing a wage subsidy would mean moving beyond the view that low-wage employers are the problem and instead recognizing them as critical to the solution.”

In other words, liberals seek to force employers to pay more regardless of the real-world worth of a particular job. For employers, the higher the cost of labor, the less labor they will hire. This is particularly true if the goods or services being offered have elastic demand or must be priced low to maintain a customer base.

For conservatives, Cass wrote, the wage subsidy means “accepting the fact that spending public funds is not bad policy per se and that progress will require spending money more wisely.”

The wage subsidy approach, Cass says, has the potential to “deliver the best of both worlds” with a subsidy delivered directly to low-wage workers. To find common ground on boosting the fortunes of lower-income Americans, the wage subsidy is a possibility.

Cass believes part of the $1 trillion being spent every year on anti-poverty programs could be repurposed. Keep in mind that this $1 trillion delivers inadequate results, yet the liberal approach is to increase spending for existing programs and add new ones that will cost more and still deliver inadequate results.

They should recognize that low-wage employers “play a difficult and invaluable role without which low-wage workers would not have an opportunity to climb higher.” Rather than demonizing small-business owners, the wage subsidy would help them stay in business and pay more to their workers.