Friday, April 18, 2014

Consumer empowerment drives job creation

Corporate tax breaks, on their own, won't drive demand -- the key ingredient in job creation

There’s a commonly held belief that needs to be disarmed of its legitimacy.

Giving tax breaks to companies doesn’t create jobs. Sure, there may be reasons to lower corporate taxes -- perhaps they’re too high, perhaps lowering them in conjunction to removing tax loopholes is prudent, etc. -- but as far as a jobs proposal goes, lowering taxes isn’t going to do much.

So what does create jobs? The idea behind that motivates lowering corporate taxes -- namely that corporations are supposed “job creators” and we need to bend to their wills whenever possible -- needs to be reversed. Instead of understanding corporations to be the creator of jobs for workers, we need to start recognizing that workers themselves are actually the creators of jobs.

"Huh? How does that work?" you might ask. It’s simple, really: while businesses do play an important role in the picture, workers are needed to A) supply labor, and B) make purchases themselves on products they want and need.

To be sure, a good product is required beforehand -- Apple can’t create more jobs in the country if the iPod isn’t something people want, for example. But that’s precisely the part of the algorithm that some economists ignore: that, for a product to be successful, it requires a consumer base to purchase it.

In times of economic recovery, that can be difficult to find. Workers are still struggling to find jobs in many markets throughout the country, and long-term unemployment can stifle demand for products. Tax breaks to companies, while they may seem to help, won’t create jobs in themselves.

Indeed, companies who receive new tax breaks would be making terrible investments if they hired people simply because they had more of their taxable income returned to them. They don’t need more baseless revenue to create jobs -- rather, companies need meaningful streams of revenue, which have come about through channels of strong demand.

When demand is high, it’s beneficial for companies for two reasons. First, it increases their profits; and second, it demonstrates to businesses which products are successful and which are not. Focus on production of successful products increases on high-in-demand products, which in turn requires more workers to create or sell that product.

So how is demand strengthened? When consumers are able to make purchases, they do so. When workers have their health care paid for them by their employer, have a strong base salary, and have relatively low personal budgets on their own, they can go out and buy that new iPod, or any other product for that matter.

During economic hardships, however, these individuals see many obstacles in their way, potential or direct, and are inclined not to spend their paychecks. Some see direct impacts of the recession, and may lose their jobs in the process. When they are rehired, they may find themselves in lower-paying jobs than they once had. And when that occurs, they spend less on products that they want, focusing more on what their needs may be.

No tax break for companies is going to remedy the demand aspect of the equation, unless that tax break is tied directly towards how well companies pay their workers.

What’s needed to create higher demand? There are several options available. Raising the minimum wage to a responsible level would be one way to increase the combined purchasing power of the consumer class (with relatively no impact on businesses, as it turns out).

Expanding social services to workers affected by the recession would also be beneficial. For example, increasing the threshold for Medicaid would allow workers to focus funds that would ordinarily be dedicated to their health care needs onto some other purchasing options. Instead of funding a health care plan for themselves, workers could buy a car for their teen or a technological device for themselves.

We’re seeing firsthand that corporate tax breaks don’t create jobs on their own in Wisconsin. A series of tax breaks, followed by several cuts to investments in the people of the state, have slowed our recovery efforts, making us the second slowest state in the Midwest region in terms of job creation.

Investments in workers and the consumer class overall -- whether it’s higher wages or otherwise providing financial help to those in need -- will help grow a stronger economy, and with it more jobs overall for businesses across the state to create.

1 comment:

  1. has to be available to consumers if you want the economy to grow. Taking money away from public employees and putting that money into insurance premiums and pensions took it out of the economy and put it into portfolios that are already overflowing. The public worker had less take home pay to spend locally and consequently the state's economy grew smaller not larger. The Wisconsin economy will not grow until consumers have discretionary money available to make purchases beyond the basics. Paul Ryan is beating a dead horse when he sells the idea that we can get our house in order by increasing military spending that is already larger than any group of countries in the world and cutting spending on all the safety net programs that the majority of our citizens need. A single payer healthcare system would go far to guaranteeing affordable healthcare for all and still leave money in people's pockets to grow the economy.