The High Cost of Low Wages

Republicans have cooled on Texas governor Rick Perry as their great white hope for 2012, but their desire to make the rest of the country look more like Texas — economically, that is — hasn't. In fact, it's hotter than ever. Despite the fact that Texas leads the nation in creating low-wage jobs, Conservatives tout Texas as an example of GOP-style job creation without a hit of irony. The “Make Work Pay: Why Empowering Workers & Holding CEO's Accounable is Vital to Economic Growth” workshop at next weeks Take Back the American Dream conference, will examine why America can't afford to go the way of Texas on jobs.

The GOP to turned to Perry in part because of a “Texas Miracle” that turned out to be an economic “mirage” of low-wage jobs and corporate tax breaks that to led a Texas-sized budget crisis and hunger deep in the heart of the lone star state. Yet, Republicans basically want to do for America what Rick Perry and conservatism have done to Texas.

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 highest 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.

This is nothing new. As I wrote almost a year ago, conservative think you (and I) need a pay cut.

The underlying factors remain the same. At the time, the GOP had the minimum wage in its crosshairs, but middle- and working-class Americans were already taking a pay cut in the form of unpaid furloughs and reduced working hours. The decades preceding the 2008 economic crisis saw working-class wages stagnate while the incomes rose for the wealthiest. The stagnation and decline in middle- and working-class wages paralleled the decline of organized labor. Increased productivity, added to the mix, means that Americans who still have jobs are working harder for less. Fewer of them are quitting their jobs, even if they're dissatisfied with their jobs cause And in a “no-quit economy,” it's pretty much true.

The past few years have born more evidence that a American workers, already weakened by decades, are bearing the brunt of the recession.

But perhaps the biggest price tag on low-wage jobs creation is the potential for a “lost decade” of economic growth. Fewer people working means fewer people purchasing goods and services, leading to a drop in demand, which leads to further job loss. Two reports. It's simple enough, but Republicans swear that lowering wages — like Michele Bachmann, who advocates doing away with the minimum wage in order to “offer jobs at whatever level” — will reduce unemployment to nil.

Two recent reports, however warn against the very wage-reducing austerity conservative are eager to impose. An IMF paper says the austerity shrinks paychecks and boosts unemployment.

These past few years, the Republican line on job creation has been simple: Cut government spending, tame the deficit, and unemployment will fall. Maybe not tomorrow, maybe not the day after, but soon. “To put it simply,” House Majority Leader Eric Cantor (R- Va.) said last spring, “less government spending means more private-sector jobs.”

But that’s not exactly a rigorous study. So here’s a rigorous study.In a new paper for the International Monetary Fund, Laurence Ball, Daniel Leigh and Prakash Loungani look at 173 episodes of fiscal austerity over the past 30 years—with the average deficit cut amounting to 1 percent of GDP. Their verdict? Austerity “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

And a UN report condemns U.S. and European austerity measures, and calls for wage increase as well as stricter regulation of financial markets.

The message is clear. If we are to recover from the “Lost Decade” that preceded this recession, and avoid another lost decade it won't be enough to just “put people back to work.” A real recovery work American workers and their families means putting people back to work in good jobs, with good wages and benefits. The alternative is to absorb the high costs of low-wages.