However, few economists can successfully carry their technical excellence over into writing for the general public. He emphasizes that these are employment subsidies that could not, unlike welfare, be exploited by people who refuse to enter employment. They are limited to private employers and to full-time employment. It is what the worker's labor services are worth to the employer. Free-market economists recognize that such a scheme completely ignores all that we have learned from public choice about government failure and all that we have learned from F. A. Hayek about the division of knowledge.
Every government subsidy comes with increased government regulation.
Phelps claims his plan would pay for itself through savings on welfare and crime. However, once such a scheme is put into place, interest groups like labor unions would advocate expansion of the subsidies just as they have successfully done with the legal minimum wage. If the subsidy is incorrect, in either direction, in any specific application, the outcome could, on Pigouvian grounds, be worse than the zero subsidy outcome. Phelps' arbitrary sliding scale of subsidies would be applied to all workers at all times and places irrespective of the unique circumstances of time and place. Simply put, because of the knowledge problem there is no way to determine whether the subsidies would make matters better or worse.