Missing the Point on Employer Subsidies

One of the things critics of low-wage employers sometimes say is that those employers are being subsidized by "the taxpayer" because their employees have to enroll in food stamps and Medicaid to make ends meet. This "employer subsidies" messaging is given a lot of play by certain organizations because internal polling shows the public is very moved by it.

When these claims are made every few years, a typical boilerplate response comes out from the wonky crowd. This response says that the only way these employers are being subsidized is if, in the alternative where food stamps and Medicaid didn't exist, the employers would increase employee compensation. Since food stamps and Medicaid don't increase labor supply, and we assume generally compensation is based on marginal productivity, this can't be so. Therefore, the claim is bunk.

But this response seems to me to really miss the point. As economist Andrijat Dube notes, what makes this point resonate with people is that they subscribe to a normative view that employers have the moral duty to meet at least the basic needs of their workers. And this is not a rare sentiment in the US, nor solely constrained to some fringe liberal wing. For instance, the retail giant Hobby Lobby justifies its $14/hr minimum wage on these precise normative grounds, which their owners say are sourced from Christian religion.

The Corporatist Dream

What's interesting about the resonance of this claim is what it tells you about the US ideological approach to welfare and distributive justice more generally.

Industrialized societies that heavily rely upon market institutions to distribute income and wealth face a common set of welfare problems that flow from inherent defects in market systems. Market institutions, in their "purest" form, consistently fail to provide adequate or optimal resources to large swaths of the elderly, the disabled, the widowed, the sick, families with children, unemployed people, students (education), and those in low-paying jobs. These problems and the attending horror that befalls a society that doesn't try to solve them is, among other things, why basically every industrializing society that has at least somewhat democratic governance sees the introduction of modern social protection institutions like social insurance, labor unions, and labor regulation.

Countries go about that social protection differently. According to the widely used Esping-Andersen decommodification index, there are three basic approaches: social democracy (Nordics), conservative corporatism (Switzerland and Germany), and liberal market (US and Australia).

Institutionally, the US has tended to have a very liberal market approach to things, but ideologically and aspirationally the US has tended to subscribe to the corporatist dream. Even the supposedly farthest left edge of American economic advocacy, organized labor, has tended to aim for the corporatist model.

Under this corporatist model, which tended to be pushed most especially by Catholics in other countries, you don't solve the problems mentioned above through a central welfare system doling out universalized benefits (as in the social democratic states). Instead, you try to solve them through the industrial relationship between workers and employers. These problems must be solved (certainly the European Catholics believed so) as a matter of social justice, and the corporatist model put the duty of solving them ultimately upon employers and, to the extent that they exist, on labor unions as well.

For the top half, at least, the US really does have a pretty serious corporatist welfare system operating. Employers often handle sickness (health insurance, subsidized by federal government), old-age insurance (401k and defined-benefit pensions, subsidized by federal government), survivor's insurance (life insurance, subsidized by federal government), family benefits (paid leave and health insurance for children), unemployment (severance, though more typically rely heavily on public unemployment insurance), on top of providing socially adequate levels of cash income.

For the bottom half though, and the bottom fifth in particular, the corporatist model has been a failure, in some cases not even able to deliver a socially acceptable minimum cash income level, let alone the other benefits. Because the corporatist ideology ultimately puts the normative duty of providing social minimums on employers, those who fail to do so are then naturally seen by many as derelict. When the community must then come in and backstop the employer to bring the workers up to a social minimum, the social injustice brought on by the employer's duty-shirking is thought to be compounded further still.

Another Way Exists But Is Totally Foreign

Longtime readers of my blog will know that I think the corporatist approach is wrong on basically every level. Asking the boss to be uncle sugar based on some notion of company communitarianism is misguided about the true nature of the labor-management relationship, which is antagonistic at its core. Additionally, asking bosses to be uncle sugar while also having them compete within market institutions is a recipe for disaster: all it takes is a few ruthless duty-shirkers to seriously compromise the viability of corporations that sincerely try to play their corporatist role. Most importantly, the corporatist model doesn't actually work. Corporatist countries like Switzerland and Germany look good by American standards, but the social democracies crush them on basically every indicator of the well-being of vulnerable populations.

The only problem with the social democratic way is that there simply are no advocates of it in the US mainstream. What this means though, to bring us back to the original point, is that the scores of people complaining about "employer subsidies" won't go away and can't (ideologically) go away.

So long as people in this country continue to subscribe generally to the ideologies 1) that stuff that comes from the employer is truly yours in ways stuff that comes from elsewhere isn't, 2) that the government should largely stay out of substantive labor regulation, 3) that unions are essentially discretionary institutions and only really appropriate on a workplace-to-workplace basis, and 4) corporations have duties to provide for the well-being of their workers, you are going to keep seeing this same story play out again and again.

The upper half or so will enjoy cushy (albeit inefficient) corporatist welfare systems heavily subsidized by the federal government. The bottom half will live in a more liberal market system with so little corporatist protection that many of them must rely (where it's even available) on skimpy public protection, which will then be derided by many in society as backstop support for bosses shirking their duties to their workers.