Blog: Does Welfare Subsidize Firms?

There is this pervasive myth that if a firm’s workers are receiving welfare, it amounts to a subsidy for the firm since it can then pay its workers less. This is absurd.

If your grandmother sends you checks once a month, do you think your employer is going to cut your wages? No, that’s not how this works. That’s not how any of this works!

For one, a worker is going to seek higher wages regardless of any aid they are getting. This myth suggests that when workers receive welfare, they suddenly don’t care about how much they make per hour. Isn’t it more likely a worker would also want higher wages alongside government aid? If so, then nothing changes in the employer/employee relationship that would push wages down and reduce labor costs for businesses.

If anything, it’s the opposite. To the extent that welfare allows more people than otherwise to remain out of the workforce or work less, the lower supply of labor should have an upward pressure on wages.

Bob Murphy has an entire episode on this, if you want a more in depth analysis with examples.

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