Welfare, Corporate Subsides, and Minimum Wage

About a year ago, many were up in arms about the need to raise minimum wage because food stamps (and other welfare benefits) were essentially subsidies to big business to let them pay lower wages. Frankly, this is a ridiculous statement , but for the sake of argument, let’s grant it.

Even if food stamps et al were essentially subsidies for big business and it allowed them to pay lower wages, it is still not an argument for minimum wage.  In fact, minimum wage would still harm low-skilled workers.

Let’s discuss how a subsidy works.  Subsidies are designed to incentivize buyers of a good/service to consume more than they otherwise would by reducing the price paid (see here for a visual representation).  It keeps up supply by paying suppliers a higher-than-normal price.  But what would happen if the subsidy were to partially disappear (or if the cost were to be increased, say by a minimum wage)?  We would see a shift in the demand curve back toward the original supply line, resulting in a reduction in quantity demanded!

So, even if we grant the assertion that social welfare is a subsidy to big business, minimum wage still doesn’t make sense.