Ask my father’s generation what it means to be a ‘welfare queen’, and perhaps they will reference the infamous Linda Taylor, who reportedly “used 80 names, 30 addresses, [and] 15 telephone numbers to collect food stamps, Social Security, veterans’ benefits for four nonexistent deceased veteran husbands, as well as welfare.” The subset of America being referred to is clear. Welfare queens are poor, black women with a heightened proclivity to trade pregnancy for welfare benefits. They are parasitical, producing nothing of value while taking gratuitously from the public coffer that the hardworking fill. Irrespective of job market participation and by the virtue of occupying a particular space in the distribution of ownership and goods, they are lavished with material things. The welfare queen is a textbook rent-seeker.
The conservative strategy of invoking variants of the welfare queen to drum up political support among whites is well-documented. Perhaps hopeful that white support rested more on tax fairness than on racial animosity, the left has appropriated ‘welfare queen’ for its own purposes. Instead of targeting poor, black women, the left increasingly uses ‘welfare queen’ to indict very large businesses that pay very low wages. Because welfare programs are designed to ensure some basic level of welfare, government covers the difference between wages and that basic level. Wal-Mart employees, for example, rely on $2.66 billion in government assistance every year. Absent these programs, the Walton family would have to pay laborers a wage sufficient for reproducing their labor. Thus in effect, welfare programs allow business to lower their labor costs without any corresponding fall in labor supply. Just like the (imagined) welfare queens of yesteryear, Wal-Mart captures an effective rent.
It may seem counterintuitive that subsidies granted to workers can be captured by non-workers, but ‘tax incidence’ (as the phenomenon is referred to in the academy) is an established economic reality. Underlying the theory is that more important than who a tax or subsidy is levied on is how sensitive quantities supplied and quantities demanded are to price changes. If you absolutely need to eat exactly one apple per day to continue living, then the quantity of apples you consume will not change when the price of apples increases tenfold. Similarly, if government levies a tax on apple producers to the effect of $1 per apple, apple producers will raise their price by $1 and consumers will shoulder the entire tax burden. This is true whether the tax is on producers or consumers. It’s a hyperbolic example, and it doesn’t consider income, but you get the picture.
We can understand the ‘welfare queen’ argument by applying tax incidence to the labor market. Below is a generalized graph of the labor market and how it responds to the Earned Income Tax Credit* (EITC), where S(w) shows labor supply pre-EITC and S’(w(1+e)) shows labor supply with EITC accounted for (EITC benefit = e = (w + e) – (w’)).
The graph shows us two things. First, (w+e) > (w), meaning the EITC increases the wages of workers it directly affects. Second, (w) > (w’), meaning the EITC lowers the wage businesses pay affected workers. Whereas previously business paid the ‘initial wage (w)‘, they now pay only the ‘market wage with employee subsidy (w’)‘. Workers received a subsidy, and so does business.
Thus, it appears there is some truth to the left’s appropriation of ‘welfare queen’. For equivalence, it should be noted that low-wage workers, to whom the EITC applies, also receive a benefit, lest we turn public opinion against programs that reduce poverty.
*I use the EITC because its a direct wage supplement. Programs like food stamps probably allow for big business to pay workers less, but those programs affect the shape of the labor supply curve (more elastic) rather than shifting the curve. **I should preface this entire post. Tax incidence assumes a baseline that doesn’t exist. Government doesn’t levy the EITC onto the labor market because the labor market doesn’t exist without government. The EITC is part of a larger set of institutions that establish what the distribution of resources is. Economic populism – to which ‘welfare queen’ belongs – is useful, but the arguments are hardly ever intellectually coherent.