Minimum Wage and the Corporate Welfare State

There has been a lot of talk recently about raising the state mandated minimum wage again. One side argues that many workers don’t make enough money to live off of and the other side argues that raising minimum wage will cause another jump in unemployment. Both sides are actually right on this issue. But both sides are also missing part of the picture. Why are many employers paying employees so little? The answer is quite simple. Low wages are subsidized by the state through its welfare programs:

Wal-Mart’s low wages have led to full-time employees seeking public assistance. These are not the 47 percent, lazy, unmotivated bums. Rather, these are people working physical, often difficult jobs. They receive $2.66 billion in government help each year (including $1 billion in healthcare assistance). That works out to about $5,815 per worker. And about $420,000 per store. But the federal and state aid varies widely; in Wisconsin, a study found that it was at least $904,542 a year per store. (See the accompanying chart.)

The author advocates raising the minimum wage to reduce welfare spending. That doesn’t address the root of the problem, which is the state introducing distortions in the market. Wal-Mart doesn’t just receive benefits in the form of welfare benefits being provided to its employees by the state. It has also received benefits in the form of tax deductions, tax credits, road improvements, water service improvements, and a slew of other deals. These deals give Wal-Mart an advantage over its competitors. When the competitors, unable to compete with a subsidized giant like Wal-Mart, goes out of business the Wal-Mart employees also lose leverage in wage negotiations. One of the most effective tools that employees have when negotiating for better wages is the ability to go somewhere else. When there is less competition in a market there are less places for employees to go and that weakens their position.

So long as the root of the problem, subsidies, isn’t address no governmental decree in regards to wages is going to make a damn bit of good. Minimum wage laws effect everybody. A large corporation like Wal-Mart can absorb paying employees more money but many of its smaller competitors cannot. Raising the minimum wage can therefore further reduce competition and therefore often act as another subsidy to the largest corporations. Taking away Wal-Mart’s subsidies, on the other hand, will take away its major advantages over competitors. Once this advantage is removed Wal-Mart’s competitors will have a better chance surviving and that will increase competition. With more competition in the market employees will have one of the most effective tools for fighting for better working conditions.