Wage Subsidies Might Be a Good Idea, But Republicans Will Never Support It


James Pethokoukis, after citing some research suggesting that a higher minimum wage reduces employment among low-skill workers, wonders why progressives seem so obsessed with the idea:

These studies aren’t some secret. So why do so many smart people keep advocating for a higher minimum wage? The best answer I can come up with is that they think it is more politically likely than the better economic answer: wage subsidies

….[Noah Smith explains:] When a company offers you a wage, the government matching would have already done behind the scenes. Someone comes and offers to pay me $20 an hour, the government is paying $12 of that. I would be making $8 an hour, but I would feel like a person who making $20 an hour. Unlike the Earned Income Tax Credit where you get a check from the government based on how much income you earned, I think people would feel a lot better in term of the framing of it if the government matched their wages instead.

I’d make several points about this. First, as Pethokoukis says, no one thinks wage subsidies are politically feasible. If there’s even a single Republican politician who favors them, I’d like to hear about it. Conversely, even if the minimum wage is a second-best alternative, it’s well-known, popular, widely understood, doesn’t require higher taxes, and is part of the political status quo. It wouldn’t be easy to raise the minimum wage, but it’s not impossible either.

Second, Pethokoukis is cherry picking the minimum wage research. It’s true that some studies show a small disemployment effect from a higher minimum wage, but there are others that show no effect at all. A fair reading of all the research suggests that the employment impact of a modestly higher minimum wage would be either very small or zero.

Third, wage subsidies can be tricky to implement. Are they temporary or permanent? Targeted or universal? Are they in addition to the EITC or a replacement? How do you prevent employers from gaming the system and reducing wages because they know the wage subsidy will make up the difference? There may be answers to these questions, but they aren’t trivial.

Finally, wage subsidies haven’t been widely adopted elsewhere, which means there isn’t a lot of compelling research to show how well they’d work. There are good reasons to be optimistic about wage subsidies, but as far as I know, they’re still fairly untested.

In any case, I really think the first point is the critical one. Wage subsidies would supposedly distort the labor market less than a higher minimum wage, but that’s because it would remove the onus of higher wages from employers and place it on the federal government. That means higher taxes to pay for the subsidy, and that’s just flatly a no-go for the modern Republican Party. This in turn means it could be implemented only as a tax credit, and that inherently places some restrictions on its reach and effectiveness. So Democrats would be in the position of backing either a good policy that will never get Republican support because it requires a tax increase, or else a mediocre policy that would still probably be a very heavy lift.

Incentives matter in politics as much as they do in the market economy, and there’s no incentive for Democrats to expend political capital on a policy change that’s highly unlikely to ever get any Republican backing. If and when that changes, perhaps wage subsidies will become a live option. Until then, a higher minimum wage is the only game in town.

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate