Around and about now each year we get the revival of the claim that because some to many people who work at Walmart get public benefits then therefore this is a subsidy to the profits of Walmart. The intuition is that Walmart would have to pay higher wages in the absence of those welfare programs and thus they're getting their labour for cheap--profit! Sadly this intuition is entirely the wrong way around. Welfare benefits that you get whether you work or not are not a subsidy to employers, in fact they're an anti-subsidy. If you can get unemployment pay, for example, or Snap, one of the other programs perhaps, then the employer has to offer you higher wages to go into work. In the jargon, welfare raises the reservation wage. This idea of the Walmart Tax is thus ridiculous--and yet it does tend to get revived around this time of year.
Here it's Lonnie Sheppard of the UFCW union trying to make the case:
But what should fuel hard-working, tax-paying Americans’ anger, is the fact that so many of their tax dollars are being used year after year to support one of the nation’s largest welfare recipients – Walmart. A company with annual profits that averaged $15.5 billion over the last five years.
Simply put, every American taxpayer is paying a tax they never heard of: The Walmart Tax.
What is the Walmart Tax?
Hmm, interesting, no? How are we subsidising this giant corporation?
The reason? The world’s largest retailer, infamous for its poor working conditions and unfair treatment of employees, pays its workers so little that thousands of Walmart employees are forced to rely on public assistance programs like food stamps, Medicaid and subsidized housing. Programs funded by American taxpayers.
No matter the town or city, if you have a Walmart in your community, you are paying a Walmart Tax. In fact, a single Walmart Supercenter is estimated to cost taxpayers between $904,542 and $1.74 million per year in public assistance money.
For Walmart, this represents tens of millions of dollars in savings, all on the backs of America’s taxpayers and workers.
Well, fascinating stuff no doubt the problem being that it's simply entirely at odds with reality. You know, it's not true sorta thing?
One attempt at busting this myth is interesting but flawed:
House Democrats based their findings on data from one state — Wisconsin. They found that 3,216 Wal-Mart workers were enrolled in the state's Medicaid program. Based on this number, the report calculates that a Wal-Mart Supercenter cost taxpayers between $904,542 and $1.7 million a year.
To get that number, Democrats assumed that everyone enrolled in Medicaid is also enrolled in every other public program available for low-income families — including food stamps, subsidized housing, child care subsidies, the Earned Income Tax Credit, and more — which accounted for 72% of the supposed taxpayer costs.
Plus, the report admits that "extrapolating taxpayer costs for Wal-Mart stores in other states based on the Wisconsin data is difficult" in large part because the state had looser rules for who could enroll in Medicaid.
Yes, OK, so, the numbers are a bit dodgy. But that's not all that is wrong here. And what is really wrong is that the effect works entirely the other way around from the manner our union rep thinks it does. Welfare raises the wages of the workers, not lowers them.
Think it through for a moment. Imagine there are two choices here. One is to go to work for $2 a day and that's all you're going to get. There is no welfare, no charity, there is work and money or no work and no money. The other choice is not to work for $2 a day and thus starve to death if you don't freeze first. It shouldn't be too difficult to imagine this either as that actually was most of human history for most of the humans in history. $2 a day per person was the average living standard from Ur of the Chaldees through to the Industrial Revolution. And there are still some 700 million people out there living that way today.
So, now someone says that you can have $2 a day if you don't work. That's our simple little welfare system. You don't work you still get the 3,000 calories you need to stay alive. What has now happened to the wages you need to be paid in order to turn up for work? No, they've not fallen to $1, or 50 cents or nothing, have they? They have risen above $2. In order to put in that day's work you need to be paid more than you will receive for not working. Why bother if you don't?
I've made this point a number of times:
By far the majority of the US welfare system comes to you because you are poor, whether working or not. SNAP (food stamps), Section 8 vouchers, Medicaid, most of the alphabet soup in fact, is on offer to people with income below a certain level whether they are working or not. So this is not a subsidy to whoever might employ them. Quite the contrary, it’s an anti-subsidy to whoever might employ them.
That was around Tax Day in 2015. Around Tax Day in 2014:
The problem with this is that only one of those programs is a subsidy to WalMart: all of the others are subsidies to the workers and thus are, in fact, costs to WalMart. For, as Bryan Caplan has pointed out, it matters whether you get the benefit of the welfare payment or service whether you are in work or out of it. Benefits that you get out of work are not benefits to potential employers. They are costs to them, for they raise your reservation wage.
And if you'd like it from a proper economist here is Arindrajit Dube:
But what about other programs like food stamps or housing assistance? These means tested public assistance programs are not tied to work, and we should not expect them to lower wages. Let’s take food stamps, which are available to eligible families whether or not a family member works or not. Indeed, when people are not working, they are more likely to be eligible for food stamps since their family incomes will be lower. Therefore, SNAP is likely to raise, and not lower a worker’s reservation wages—the fallback position if she loses her job. This will tend to contract labor supply (or improve a worker’s bargaining position), putting an upward pressure on the wage. Whether or not wages are increased is an empirical matter: there is evidence that the initial roll-out of the food stamps program across counties in the 1970s lowered work hours, consistent with an increase in the reservation wage. The key point is that it is difficult to imagine how food stamps would lower wages. And if they don’t lower wages, they can’t be thought of as subsidies to low wage employers. The same logic applies to other means tested programs like energy or housing assistance. Moreover, these conclusions hold in a wide array of models of the labor market, including ones that emphasize bargaining or efficiency wage concerns.
Please do note that I disagree with Dube about many things, for example his support of a higher minimum wage. But those disagreements are about the relative values we puts on varied parts of the results, not arguments about the way that economics or wages work. Dube is a good economist and he really has laid out the basics of this issue here.
This does slightly change if there's a benefit that you only get if you are working. So the EITC could be a subsidy to employers. And, so far as we know, some of it is, we think about 30% of the amount really does become a subsidy to the employer. But then we should be fine with that for two reasons. One being that the point of the EITC is to provide a subsidy to the employment of low skill labour. The second is that it's a minor program when compared to all of the other ones. We have very much more welfare spending going on which raises the reservation wage and thus the net effect of the whole system it to raise wages, not subsidise low paying employers.
There really is no Walmart Tax. The welfare system does not subsidise employers, it is a boon and a benefit to the workers not the bosses. But expect this untruth to be taken out every tax day again and again. Just because it's untrue won't stop people using something politically useful.
