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How to create more jobs by lowering wages: Texas and America

Robert Reich, professor of public policy | September 14, 2011

Perry and Romney can duke it out over who created the most jobs, but governors have as much influence over job growth in their states as roosters do over sunrises.

States don’t have their own monetary policies so they can’t lower interest rates to spur job growth. They can’t spur demand through fiscal policies because state budgets are small, and 49 out of 50 are barred by their constitutions from running deficits.

Mitt Romney & Rick Perry

Mitt Romney & Rick Perry

States can cut corporate taxes and regulations, and dole out corporate welfare, in efforts to improve the states’ “business climate.” But studies show these strategies have little or no effect on where companies locate. Location decisions are driven by much larger factors — where customers are, transportation links, and energy costs.

If governors try hard enough, though, they can create lots of lousy jobs. They can drive out unions, attract low-wage immigrants, and turn a blind eye to businesses that fail to protect worker health and safety.

Rick Perry seems to have done exactly this. While Texas leads the nation in job growth, a majority of Texas’s workforce is paid hourly wages rather than salaries. And the median hourly wage there was $11.20, compared to the national median of $12.50 an hour.

Texas has also been specializing in minimum-wage jobs. From 2007 to 2010, the number of minimum wage workers there rose from 221,000 to 550,000 – that’s an increase of nearly 150 percent. And 9.5 percent of Texas workers earn the minimum wage or below – compared to about 6 percent for the rest of the nation, according to the Bureau of Labor Statistics. The state also has the lowest percentage of workers without health insurance. Texas schools rank 44th in the nation in per-pupil spending.

The Perry model of creating more jobs through low wages seems to be catching on around America.

According to a report out today from the Commerce Department, the median income of U.S. households fell 2.3 percent last year — to the lowest level in fifteen years (adjusted for inflation). That’s the third straight year of declining household incomes. Part of this is loss of jobs. Part is loss of earnings.

More and more Americans are retaining their jobs by settling for lower wages and benefits, or going without cost-of-living increases. Or they’ve lost a higher-paying job and have taken one that pays less. Or they’ve joined the great army of contingent workers, self-employed “consultants,” temps, and contract workers – without healthcare benefits, without pensions, without job security, without decent wages.

It’s no great feat to create lots of lousy jobs. A few years ago Michele Bachmann remarked that if the minimum wage were repealed “we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.”

I keep on hearing conservative economists say Americans have priced themselves out of the global high-tech labor market. That’s baloney. The productivity of American workers continues to soar. The problem is fewer and fewer Americans are sharing the gains. The ratio of corporate profits to wages is the highest it’s been since before the Great Depression.

Besides, how can lower incomes possibly be an answer to America’s economic problem? Lower incomes mean less overall demand for goods and services — which translates into even fewer jobs and even lower wages.

In short, the Perry (and Bachmann) model of job growth condemns Americans to lower and lower living standards. That’s nothing to crow about.

Cross-posted from Robert Reich’s blog.

Comments to “How to create more jobs by lowering wages: Texas and America

  1. The article says “Texas has the lowest percentage of workers without health insurance”. I guess it meant “the HIGHEST percentage of worker WITHOUT health insurance” or which is the same ” the LOWEST percentage of workers WITH health insurance”. Otherwise its record would be good, at least on this count.
    Thanks for the article anyway. Clarifying as usual (despite that I don’t think our best bet is to become all consuming machines to keep the economy going. We ought to invent something different at our stage of civilization).

  2. Great Article.

    I think in the current climate any kind of job is good there are so many unemployed graduate aswell as professionals. They don’t care if they get a job in any field now. As long as they are earning. Even the “lousy” jobs are good for the economy a least they’re not “on the doll”.

    There are currently alot of jobs in IT however.

  3. More Obama accomplishments, your Democratic Cult followers intend:



    3 years, and still awaiting his creation of his first job. Not distributing poor people’s money to the rich like you, foo!!!!!!

  4. Apparently, Bachmann, Perry and Romney believe the unemployment crisis can be solved, if the American worker is willing to work for nothing, zilch, zip! The sad part is no one is standing up for American worker, including the workers, we are all waiting around for someone else to do it.

  5. Just what I’ve been saying, Dr. Reich. When people don’t have the income or the job security, they cut back on non-essentials – new cars, vacations, more square footage apartments, etc. Then they start cutting the essentials. This means our biggest role under our system – being good consumers – is compromised. People will save more and more just to survive. That creates a downward spiral of consumerism, just as the “race to the bottom” in lower and lower wages is happening. The two fronts will create a Perfect Storm of lower expectation in America.

    Read my blog on like issues.

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