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Robert Reich: The Real Job Killers

March 4, 2014

Why Republicans are wrong on the minimum wage.

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Image from Flickr via Republican Conference

By Robert Reich
By arrangement with Robert Reich

House Speaker John Boehner says raising the minimum wage is “bad policy” because it will cause job losses.

The U.S. Chamber of Commerce says a minimum wage increase would be a job killer. Republicans and the Chamber also say unions are job killers, workplace safety regulations are job killers, environmental regulations are job killers, and the Affordable Care Act is a job killer. The California Chamber of Commerce even publishes an annual list of “job killers,” including almost any measures that lift wages or protect workers and the environment.

Most of this is bunk.

When in 1996 I recommended the minimum wage be raised, Republicans and the Chamber screamed it would “kill jobs.” In fact, in the four years after it was raised, the U.S. economy created more jobs than were ever created in any four-year period.

For one thing, a higher minimum wage doesn’t necessarily increase business costs. It draws more job applicants into the labor market, giving employers more choice of whom to hire. As a result, employers often get more reliable workers who remain longer – thereby saving employers at least as much money as they spend on higher wages.

Had it used that money on wages instead, it could have given its workers a raise from around $9 an hour to almost $15.

A higher wage can also help build employee morale, resulting in better performance. Gap, America’s largest clothing retailer, recently announced it would boost its hourly wage to $10. Wall Street approved. “You treat people well, they’ll treat your customers well,” said Dorothy Lakner, a Wall Street analyst. “Gap had a strong year last year compared to a lot of their peers. That sends a pretty strong message to employees that, ‘we had a good year, but you’re going to be rewarded too.’”

Even when raising the minimum wage—or bargaining for higher wages and better working conditions, or requiring businesses to provide safer workplaces or a cleaner environment—increases the cost of business, this doesn’t necessarily kill jobs.

Most companies today can easily absorb such costs without reducing payrolls. Corporate profits now account for the largest percentage of the economy on record. Large companies are sitting on more than $1.5 trillion in cash they don’t even know what to do with. Many are using their cash to buy back their own shares of stock–artificially increasing share value by reducing the number of shares traded on the market.

Walmart spent $7.6 billion last year buying back shares of its own stock—a move that papered over its falling profits. Had it used that money on wages instead, it could have given its workers a raise from around $9 an hour to almost $15. Arguably, that would have been a better use of the money over the long-term–not only improving worker loyalty and morale but also giving workers enough to buy more goods from Walmart (reminiscent of Henry Ford’s pay strategy a century ago).

There’s also a deeper issue here. Even assuming some of these measures might cause some job losses, does that mean we shouldn’t proceed with them?

The nation could create millions of jobs tomorrow if we eliminated the minimum wage altogether and allowed employers to pay workers $1 an hour or less. But do we really want to do that?

Americans need jobs, but we also need minimally decent jobs. The nation could create millions of jobs tomorrow if we eliminated the minimum wage altogether and allowed employers to pay workers $1 an hour or less. But do we really want to do that?

Likewise, America could create lots of jobs if all health and safety regulations were repealed, but that would subject millions of workers to severe illness and injury.

Lots of jobs could be added if all environmental rules were eliminated, but that would result in the kind of air and water pollution that many people in poor nations have to contend with daily.

If the Affordable Care Act were repealed, hundreds of thousands of Americans would have to go back to working at jobs they don’t want but feel compelled to do in order to get health insurance.

We’d create jobs, but not progress. Progress requires creating more jobs that pay well, are safe, sustain the environment, and provide a modicum of security. If seeking to achieve a minimum level of decency ends up “killing” some jobs, then maybe those aren’t the kind of jobs we ought to try to preserve in the first place.

Finally, it’s important to remember the real source of job creation. Businesses hire more workers only when they have more customers. When they have fewer customers, they lay off workers. So the real job creators are consumers with enough money to buy.

Even Walmart may be starting to understand this. The company is “looking at” whether to support a minimum wage increase. David Tovar, a Walmart spokesman, noted that such a move would increase the company’s payroll costs but would also put more money in the pockets of some of Walmart’s customers.

In other words, forget what you’re hearing from the Republicans and the Chamber of Commerce. The real job killers in America are lousy jobs at lousy wages.

Robert B. Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written thirteen books, including the best sellers Aftershock: The Next Economy and America’s Future and The Work of Nations: Preparing Ourselves for 21st Century Capitalism. His latest, Beyond Outrage, is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause. His new film, “Inequality for All,” is now in theaters.

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