Welfare Benefits for Big Business?

Copyright, The New York Times Company

News reports have emerged this year that some of the nation’s largest and best-known corporations – like Walmart and McDonald’s – may have disproportionate numbers of their employees taking part in public assistance programs like Medicaid and food stamps. A video that went viral on YouTube criticized McDonald’s for offering its employees assistance with navigating the complex web of federal government assistance programs.

Most public assistance programs are aimed at poor people and limit participants’ incomes to a maximum somewhere around the poverty line (about $20,000 a year for a family of three). Because jobs generate incomes, it’s difficult for a worker to be admitted into antipoverty programs unless he or she works part time or earns near the minimum wage. Thus, it is no surprise that employers like McDonald’s and Walmart offering part-time or minimum-wage positions would have a disproportionate number of their employees in such programs.

One point of view is that employers just want to be helpful, and some of them happen to be in a line of business where they can create job opportunities for low-skilled people, many of whom can also benefit from knowledge about antipoverty programs. But critics assert that low pay is a deliberate corporate strategy to use government program revenues to enhance their bottom line.

Economists have long cataloged the winners and losses from antipoverty programs – we call it the “economic incidence” – and the answer is more subtle than either side acknowledges.

First and foremost, antipoverty programs raise wages and reduce profits in the short run because they implicitly penalize work, especially the full-time work that is most likely to raise an employee above the poverty line. In effect, employers not only have to compete with each other for employees, but they have to compete with the welfare state, too (as a recruiter, Stacey G. Reece, explains in his congressional testimony).

But the welfare state may also give big employers an advantage over small employers. Big employers achieve a scale large enough to host a number of employee benefit programs from education assistance and retirement plans to advice and assistance with welfare programs that small employers cannot afford. Going forward, I expect that large employers will offer more help for employees to navigate the Affordable Care Act than small employers will.

Although the earned-income tax credit is an exception, many safety-net programs permit participation on a part-year basis, which conveys an advantage to seasonal businesses, large and small. Employees at seasonal businesses have two sources of income – an employer paycheck during the parts of the year that they’re on the payroll and government program benefits during the rest of the year – while employees at nonseasonal businesses just have one income source.

Government transfer payments move purchasing power from those who finance the programs – taxpayers and the buyers of government debt – to the transfer programs’ participants. The transfers hurt businesses that serve, or borrow from, the program financers but may help businesses who serve transfer program participants. Walmart and McDonald’s may be among the latter group, too.

On the whole, social safety-net programs make it more costly to do business but nonetheless may confer competitive advantages on particular types of businesses.