The holiday season brings more entries to the annals of low-wage misery. This week the Atlantic’s Jordan Wiessmann reports on food drives for Wal-Mart associates. And the Huffington Post digs up McDonald’s advice to workers to take two vacations a year, courtesy of the same “McResource” folks whose help-line recently advised one employee to apply for food stamps.
Some of this is clearly well-meaning; some of it straddles the line between clueless and callous. All of it underlines how poor many Wal-Mart and McDonald’s employees are. The advice to turn to government assistance also suggests that McDonald’s implicitly relies on government aid to subsidize low wages. This reliance is why Barry Ritholtz at Bloomberg View calls Wal-Mart and McDonald’s “the two biggest welfare queens in America.”
The argument: If you pay your workers so little that they can’t eat without food stamps, you’re relying on the government to pay part of the cost of keeping them working for you (and, well, alive). As Bloomberg Businessweek‘s Susan Berfield has reported, more than half the fast food industry’s workforce gets some kind of public aid. If it weren’t for that supplement, companies like McDonald’s and Wal-Mart would have to pay higher wages.
If articles like Ritholtz’s shame low-wage employers into paying more, great. Workers’ real wages have fallen for decades, with cruel and socially destructive effects. Someone who puts in 40 hours a week of work in a McDonald’s kitchen should not have to rely on charitable hospital care or food pantries.
However, the idea that heartless and flinty employers are subsidized by welfare isn’t new. For many decades in the 19th and early 20th centuries is was more or less the conventional wisdom — and long seen as an argument for cutting welfare. Not for corporations but for the working poor. We’re still living with the ugly consequence: a system of government aid that aggressively cuts benefits for those who take on work, and forces many of the poor into desperate choices, like whether to take a job when it will mean losing their Medicaid benefits.
You may be surprised to know just how far back the discussion of subsidies goes. In the early 19th century English reformers noted the propensity of landowners to hire workers when they were needed and to throw them back on the system of parish relief (England’s Old Poor Law) when they weren’t. The Poor Law Commission of 1832 concluded that supplementing wages with welfare let employers cut wages and let the local parish pick up the slack. Here’s what the commission said in its report (italics mine):
“The employers of paupers are attached to a system which enables them to dismiss and resume their labourers according to their daily or even hourly want of them, to reduce wages to the minimum, or even below the minimum of what will support an unmarried man, and to throw upon others the payment of a part, frequently of the greater part, and sometimes almost the whole of the wages actually received by their labourers.”
Unpack that slightly archaic wording and this is exactly the same argument now thrown around about McDonald’s and Wal-Mart. Where the report says “the employers of paupers” you can substitute “low-wage service and retail employers” and the basic argument that the public is subsidizing wages so low that no one could work for them is much the same as you hear now.
So what was the solution the Poor Law Commission came up with? It was not (as you might assume, and Ritholtz proposes) legislation to raise wages. Oh, no. The commission’s remedy was to design a New Poor Law that would keep employers from taking advantage of government subsidy … by imprisoning welfare recipients.
That neatly resolves the problems that the 1832 Commission saw: If instead of handing out food and rent subsidies local governments just separated the poor in workhouses then (a) only the most desperate would turn to welfare and (b) employers would no longer be able to underpay their workers.
The workhouses created by the New Poor Law replaced the old system of “outdoor relief” with islands of extraordinary misery. That was largely intentional; the workhouse was supposed to be a worse option than outside work. It’s out of the new, improved Poor Law–that England got the Dickensian conditions of rotting bread, typhoid and endless hours of mindless labor breaking rocks and picking nits out of wool. Those workhouses survived a long time, to be shut down only in 1930.
The Victorian days of the workhouse are behind us. The idea that government aid shouldn’t subsidize low-wage work is not. While we don’t throw the destitute into prison anymore, we still cut off government aid programs at levels that don’t come close to allowing a middle-class life. In most states — pre-Obamacare — Medicaid benefits disappear just above the poverty level. Support a family of four and earn $23,051 instead of $23,050? There go your health care benefits. Marry someone who earns a wage that’s slightly above poverty level wage, no food stamps (this devastating story shows how that very scenario leads to a horrible spiral of decline).
All this doesn’t even take into account that working costs money. Obviously, those with a good wage are better off than folks on welfare. But those working and close to the poverty line are not. Transportation to work costs money. Clothes for work costs money. Child care.
So let’s try to look at things the perspective of the working poor: With no job at all, you are eligible for a range of government benefits. Take a part-time job at McDonald’s for $8.69 an hour and while you may still be eligible for some aid, and you face the stigma of taking handouts and evil looks at the grocery store for paying with food stamps. Imagine finding a job at $12.50 an hour that’s a one-hour commute away. Now your medical benefits are gone, you have to pay for your car, you may have to pay for child care, and you are left wondering if you can afford to work. Another example of this kind of trade-off comes with unemployment benefits (a program mainly not for the very poor, but the middle class), that end when you take even a minimum-wage job.
A wide-range of government aid programs, from Medicaid, to unemployment insurance, to rental subsidies get cut off at low income thresholds, and almost all are curtailed sharply by even small earnings. In effect, cutting off benefits from the near-poor promotes the same principle of separating the paupers from the workers as the 19th century workhouse. Discussions of poverty remain tied to the idea, a residue of the New Poor Law, that government aid is so terrible and stigmatizing that no working person should have to rely on it. Even well-intentioned calls to get people “off welfare” are still freighted with that 1830s-era baggage.
It may be possible to create an ideal world in which every job pays a middle-class wage. In that world, no one who works full time will need “welfare” and no big corporation will receive a hidden subsidy by having its workers collect government benefits. We’re not close to that world right now.
If you want to help the working poor in today’s world, your best bet is to both increase wages (as Ritholtz and many other folks want) and get used to the idea that people in low wage jobs should still get aid to survive. That will mean McDonald’s will still send some of its employees to apply for food stamps. If you really care about casting the welfare net wide enough to help not only the destitute but also the working poor and near-poor, you can learn to live with that.