Over at DowningWorld, David is thinking about a proposal to require firms receiving subsidies from the city of St. Paul to pay higher wages. In a followup piece, David says this.

It's been fairly common for some time for cities to assist businesses either with some kid of grant or by giving some sort of property tax relief. This must be what is meant by "subsidies."

If that's the case, then it absolutely makes sense to consider the wages the subsidized business will pay its workers. The purpose of the subsidy is to benefit the city, through jobs and taxes, and a business in a sector where people earn higher wages is going to benefit the city more than a business that pays workers lower wages.

So it becomes a matter of return on investment. If public dollars are to be diverted to a private business, then the guardians of the public purse would be remiss not to consider the wages that business will be paying out in the city. If the wages paid are low, that business might not be worth having at the price the taxpayers are being asked to pay. The city may be better off letting that business leave, and concentrating on attracting businesses that do pay their employees well.

I have written about this before, and this appears to be the same type of proposal discussed in St. Cloud. In his first post, David points out that these subsidies are not free:

And how will the city pay more? Raise taxes, or cut services, like rec centers and libraries, and filling the potholes in the streets. But at least we'll be making sure that someone who may not even live in St. Paul is getting a "living wage."

This is along the lines of the Green Party mayoral candidate who wanted to impose a city income tax. They think they can just take and take, and there are no consequences. But really, what does simple economics matter, when you mean well?

...which is the point I was making as well. You give subsidies, that lowers the revenue you have to fund other city services, and you either must raise taxes on someone else or cut back on services. The money does in fact come from the economy.

So here's the question that David's followup raises: Should governments be in the business of bidding for high-wage jobs, which in essence is what the living wage legislation does? This is not a Democrat-Republican thing, as Pawlenty's JOBZ legislation is in fact the same type of proposal as the St. Paul desire for living wage ordinances; the movements generate from a common source to which very well-meaning people are attracted.

We know that if the living wage ordinance was applied to all jobs -- whether or not with government contractors, whether or not the business is subsidized -- that it would create massive unemployment. It would be a minimum wage, as I argued before. The proponents get this, so they propose instead to restrict the scope of the ordinance to just the subset of firms that do business with government. What should be the harm? The better question to ask is qui bono -- who benefits from it? First off, to answer Downing's question on "why contractors", simply ask who the alternative to contractors would be? Answer: Government workers, represented by public employee unions. These are huge beneficiaries of living wage ordinances for government contractors; they would restrict the ability of the private sector to compete with union workers to provide public services.

But more to the point is that, as an anti-poverty program, trading business subsidies for poverty reduction is a bad bargain. The poor are unlikely to be able to get the jobs provided; the biggest problem for the poor isn't a low wage but insufficient hours of work. It also takes away from the starter jobs the poor need to develop job skills that allow them to move up the wage ladder.

If governments wanted to help they would focus on these things. But before you spend $1 on any of that, ask yourself why the private sector isn't already providing those opportunities? The answer is: it is. You call it "McJob."