The Incentive Trap of Government Subsidies
Small business president Gerry Auclair has observed an interesting conundrum arising from the effect of government subsidies in society. He participated in a program through Workforce of Rhode Island to hire and train an employee as a sewing-machine operator, which essentially provided a $5,000 subsidy for the company’s cost of employing her, but:
Then, in July, she got married. The state now looks at combined income of husband and wife, and quickly dropped daycare assistance for her two children. A few months later, it notified her it was dropping the health-care assistance for the children, as well.
If she continues to work, the cost of day care plus the family health-insurance co-pay is more than she earns working. She had no choice but to give her notice, quit working, so she would fall under the magic income level and secure affordable health care for her kids.
While I’m certainly in favor of indirect participation, if the government is going to attempt to move the economy forward, Auclair’s anecdote strikes me as evidence that government handouts will tend to multiply. It’s a bit like inflation; we give money to assist with healthcare so children don’t suffer poor health, then we add in daycare so a single mom can provide for her own family, but these payments then become part of the baseline for other activities.
The mindset comes to be that subsequent actions (such as marriage and employment) are premised on these underlying payments, and the recipient ought therefore be entitled to their continuation; otherwise, we’re creating disincentive to good decisions. Small-government conservatives will find that to be a very human response, inasmuch as we think that healthy choices tend to require the application of social and financial incentives; rarely are healthy choices so inherently and immediately attractive that people will give up government handouts in order to make them.
Part of the reason society (and government) ought to encourage marriage is that parents working together will be more self contained when it comes to raising children, both for the well-being of the children and to alleviate pressure for public assistance. What Auclair is requesting, in a sense, is that his former employee continue to be considered a single mom, even though she’s now part of a married family with income beyond the bounds that merit public assistance. (One wonders: Should we subsidize well-paid single parents whose one income is equivalent to that of a married pair?)
Of course, it also ought to remain a question whether, as a community, we should really prefer having both parents in the workforce. As my family staggers through our busy schedules, with inadvisably extensive involvement in community activities of various sorts, I’m increasingly struck by the value of having one spouse relieved from the necessity of work. Not only is maintaining a home a labor-intensive operation, but community involvement and other volunteer activities suffer when homes become mere rest-stops between workdays and cleaning, maintenance, management of children’s schedules, and so on all must be squeezed in amidst professional responsibilities. (This drain of free time among the population, I’d speculate, increases the call for government to direct money toward community services and charity, thus making jobs out of them.)
It seems to me that we’d all be better off if Mr. Auclair’s ire were directed toward relieving the burden of government on his business (through mandates, regulations, and taxes) so he could pay for his own training and raise the salary that he offers until it is sufficiently attractive to bring employees to him. Instead, his call for continued subsidies is little more than an attempt to ensure that he, with his particular needs, realizes a net gain from government’s hand in economic affairs, even though it will inevitably increase the burden on somebody else.