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The employer is benefiting from a lower labour market clearing price due to government subsidies. The government benefits from increased employment, even if so
by xyzzy123 5y ago
The employer is benefiting from a lower labour market clearing price due to government subsidies.
The government benefits from increased employment, even if some subsidy must be provided.
Those two things can be true at the same time!
However the subsidies distort the labour market and incent low productivity labour.
One question is whether raising minimum wage beyond the subsidy level would cost more in increased unemployment than the value of the subsidies provided.
That's a deeper question about labour market structure and demand, and the answer might be different in different places and times.
- jjeaff 5y agoAre you using the term "low productivity labor" to mean low wage labor? Because the two are not the same thing. There are plenty of low wage jobs that are very high productivity. Wages aren't set based on productivity they are set by supply and demand of the labor.
- xyzzy123 5y agoA good point. We can tell the difference between high productivity / low wages and low productivity / low wages because the latter will tend to shed jobs on subsidy withdrawal while the former will tend to pay more. Workers with high productivity but low wages (let's say, in an factory where the owners make a lot but the employees are easily replaceable) are still a good deal at a legislated higher price, the owners just get less of the surplus. Another way to think about it is that while productivity doesn't set wages, it represents the ceiling of what you'd be able to pay. Those marginal, low productivity, "can't afford to pay you more" jobs are what you lose when you remove subsidies (or increase minimum wage). Hence, subsidies targeted at low wage earners disproportionately incent low productivity labour.