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Center for Policy Research

Policy Brief

Helping the Working Poor: Employer- vs. Employee-Based Subsidies

Stacy Dickert-Conlin & Douglas Holtz-Eakin

C.P.R. Policy Brief No. 14

July 1999

Abstract

In the United States and Europe there has been renewed interest in subsidizing firms that employ disadvantaged workers as a means of addressing poverty and other social problems. In contrast, the prevailing practice is largely to provide social welfare benefits directly to individuals.

Which approach is better? The authors re-examine the relative merits of employee- versus employer-based labor market subsidies and conclude there are good reasons to continue to rely on the direct, employee-based approach. In practice, low-wage workers are seldom either low-skill or low-income workers. Furthermore, workers who might quality for a firm-based subsidy are reluctant to so identify themselves for fear of being stigmatized or labeled as "needy." Thus, employer-based subsidy programs have lower participation rates and correspondingly higher per capita expenditures than employee-based subsidy programs.

The Center for Policy Research Policy Brief series is a collection of essays on current public policy issues in aging; urban and regional studies; education finance and accountability; public finance; social welfare, poverty, and income security; and related research done by or on behalf of the Center for Policy Research at the Maxwell School of Syracuse University.


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