RAISING THE EMPLOYMENT AND PAY OF THE WORKING POOR** Low-Wage Employment Subsidies versus the Welfare State

This paper is a brief for the introduction of a subsidy to any qualified firm for its use of low-wage employees as a means to reduce the unemployment and raise the pay of disadvantaged workers. There would be a case for such a wage subsidy in all the advanced market economies, and certainly the American one, regardless of recent trends. The case has grown stronger, however, with the worsening of the relative wages and especially the unemployment rates of low-age workers. The globalization of investment and the bias of technical progress are the causes most often suggested. I would add the growth of the welfare system—the public entitlements to hospitalization, to retirement and disability insurance, and to the benefits labeled "welfare" in the narrow sense. Since this factor tends to be overlooked, I devote Section I to it. Section II proceeds to the case for a low-wage employment subsidy. It will be clear that the beneficial effects of the subsidy on disadvantaged workers are the mirror opposite of the harmful side effects of the welfare system, side effects that the subsidy would counteract.