Center for Policy Research
Helping the Working Poor: Employer- vs. Employee-Based Subsidies
Stacy Dickert-Conlin & Douglas Holtz-Eakin
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 at the Maxwell School of Syracuse University supports policy-relevant research and disseminates knowledge that enables leaders to make informed policy decisions and provide effective solutions to critical challenges in our local region, state, country and across the world.