The many issues surrounding workers’ pay can be complicated and highly charged. But as discussions about these challenges play out on Capitol Hill and across the country, it is important to ensure the conversation is centered around facts.
One claim that proponents of wage increases sometimes make is that the government subsidizes businesses whose workers include low-wage earners. They say that the burden is shifted away from businesses in the form of a fair salary and to the government in the form of public support programs, including welfare and others.
The reality is that this is seldom the case.
A full-time employee is unlikely to qualify for public assistance. And part-time employees, although more likely to be in need of such government assistance, usually choose to work part time—and do so for reasons unrelated to their employer. The government assistance they receive is not a means of subsiding the employer then, as some may claim, but is rather to provide necessary financial support beyond remittance for hours worked.
Further, we know that a job is more than just a paycheck. Full-time and some part-time workers often receive benefits like health insurance and retirement savings plans that push their total compensation higher and provide stability for their families. Importantly to this debate, these benefits are not factored in to many claims about workers’ cash compensation per hour.
This discussion was reignited again recently after a report from the Government Accountability Office (GAO) claimed that up to 12 million Americans working full-time received government assistance. The report raised a lot of eyebrows, but digging a bit deeper, there are strong reasons to believe its estimate is highly inflated, notably:
- Although it makes nationwide claims about the need for assistance, it is hardly a broad representative sample.
- In fact, GAO only used data from 11 states to inform its conclusions.
- The data likely included individuals who were unemployed at the time of taking the survey or whose federal assistance was soon to lapse as a result of a new job.
- Respondents were asked about their current or most recent employer, meaning they could be presently unemployed and yet still counted in the tally. Similarly, individuals who recently began a new job at the time of the survey could have been counted in the total even though their public assistance benefits were soon to lapse as their hours increased.
- A respondent is counted toward the total not only if they receive federal assistance, but also if someone else in their household receives government assistance.
- The dynamics of tracking households versus individuals are sometimes complex. For example, a person could live in a household with others who qualify for benefits, even though they themselves do not based on their income.
The best fuel for wage growth is a strong economy, which is why we should prioritize enacting policies that help businesses make it through to the other side of the pandemic and increase our competitiveness over the long term. As such, discussions about raising wages should be based on sound economic analysis after assessing all of the facts. Alternatively, if businesses are forced to alter wages based simply on political edicts, they would likely either have to raise prices, which hurts demand, cut back on internal investment, which hurts the productivity of all workers and suppresses everyone’s wages, or reduce returns to shareholders, which makes it harder for the business to invest and expand.
And remember, COVID-19 has sidelined entire industries and resulted in millions of people without jobs, but before the pandemic we also had massive amounts of jobs without people. By focusing on policies that help businesses recover and our economy rebound, we will also drive-up demand for workers and—as a result—wages.
The debate over pay requires a full understanding of what constitutes compensation and the myriad factors that determine it. Ignoring these details can lead to bad policies that ultimately backfire and hurt the workers that we all want to help succeed.