Actually, the Rich Don’t Create Jobs. Demand Does

by Paul Michael on 12 August 2011 2 comments

We've heard an awful lot of back and forth recently over the dreaded tax hikes for the richest Americans, and the general argument against it has been this one:

"Don't tax the rich, they create the jobs!"

Really? I think it's fair to say that the rich control the jobs, but do they create them? Well, kind of, but only if those jobs are needed. And that need is determined by the very people who have all the money, not by the people desperate for jobs. These are the same people that are laying off workers when their businesses record profits. (We'll get to that in a moment.) Apple, Target, or even a local small business like Joe's Plumbing — they will hire people if they need them, not because they have more money to do so. And why do they hire people anyway? To make money. If the goal is making money, it can be done through expansion and employment, or it can be done through cutbacks and layoffs. The latter is king these days. (See also: Laid Off? You May Have to FIght for Unemployment Benefits)

It's classic misdirection, and fear mongering, to say that tax hikes on the ultra wealthy will lead to massive unemployment and fewer jobs. These tax cuts for the rich have been in place now for over a decade, and America is in one enormous pickle, so how do the two align? Where are all the jobs, if these tax cuts are the answer?

In fact, history has shown that when the rich pay more taxes, there are more jobs. Just look back at those years when the top marginal tax rate was above 90%. You'll see that the average annual growth in total payroll employment was 2%. When that top rate is reduced to 35% or less, the average growth falls to 0.4%.

Note: The chart comes from ThinkProgress, which is definitely a left-wing website, but the numbers are historically accurate and come from the Bureau of Labor Statistics and the Tax Policy Center.

More Money Does Not Mean More Jobs

Here are some recent examples. HSBC and Merck both recently announced strong financials. HSBC posted a 35% profit increase, around $11.5 billion, for the first half of the year. Merck's profits are solid and growing. And yet, HSBC has announced that 25,000 jobs will be eliminated between now and 2013, and Merck is laying off 13,000 people. Lockheed Martin will be trimming thousands of jobs, too.

If the arguments for the wealthy tax breaks stand up, then these profits would equate to more jobs, not job cuts. But that's not the way the world works, at least not in businesses that have to report to share holders. And in many of these big corporations, the everyday workers are faceless numbers. They are just statistics. And when you eliminate their jobs, and the stock jumps a quarter of a point...well, a few wealthy people become wealthier.

ARTICLE CONTINUES BELOW

Greed is the New Order of Business

Say you own a business and it's making $200 million a year in pure profit, employing some 3000 workers. Now you find out that if you work some people a little harder, you can maintain current production and increase profit by cutting 750 jobs. What do you do? Put your current morality to one side and adopt the mindset of a hard-nosed business executive with stockholders to please. It's quite simple. You cut jobs and give the top brass a pay raise.

That's what is happening everywhere. Rich corporations are cutting jobs and making more money than ever. Even Fox News, who are slanted to the right, are admitting that corporations have a lot of cash in reserve; they're just not spending it. CEOs aren't saying to the board, "Listen you guys, we're making too much money. Shouldn't we hire some more people?"

No, new jobs are created when there's a need. You expand, open a new plant or new store, and add jobs when they are required. You don't hire 10 people when you can get away with 8. In fact, these days you can hire 7 because people are so scared of losing their jobs that they'll work extra hard and take less pay. That's supply and demand. Don't expect businesses to eat into their profit margins or tell the shareholders that they aren't getting as big a slice of the pie. That doesn't happen any more.

The fact is, the rich are not creating jobs. They haven't been doing it in a long time. When jobs are needed, those jobs will be filled. When jobs can be cut, they will be cut. But when profits matter more than people, we get what we have right now. High unemployment, and low taxes for the wealthy.

Editor's Note: The views shared by one writer does not reflect the views of all writers on Wise Bread. Commentary on politics, news, and other topics on this site are meant for entertainment purposes.

Additional photo credit: ThinkProgress
5
Average: 5 (1 vote)
Your rating: None
ShareThis

comments

2 discussions

Add New Comment

CAPTCHA
This test helps prevent automated spam submissions.
Guest's picture
John

Great article! Totally true, the rich people always cut jobs in order to make more profit. Therefore they should share a part of their profit so the people without jobs can afford to buy the products/services the rich people are creating (through their companies).
However there is one important aspect: The demand already exists: people need food, water, shelter, clothes - to name just the essentials. People need jobs because they need resources, not for the jobs themselves. If there is no demand, that means people don't need things, therefore they don't need money and they don't need any jobs

Best regards

Guest's picture

I don't understand the two-sided approach you take towards financial companies hiring, or holding cash. HSBC, for example, is a global bank that survived reasonably well through the downturn, but are now trying to trim assets (such as their North and South American businesses) to ensure less overhead through the downturn. Though they are not an American company, they still play into the 'Too Big to Fail' argument.

Central banks are forcing retail banks to hold enough assets and deleverage themselves so that they are better resilient through downturns. Thus, they cut jobs. Jobs are a sort of fixed cost and, in effect, are leveraging the future of the company, which is additional risk taken on by the company. There CAN be an argument made (in America at least) that those who accepted bail out money (those who some have deemed 'too big to fail') should as a requirement be forced to maintain job levels, though I don't know how you can enforce this.

For non financial companies, it is a difficult argument, but it still ties back to a remnant of the recent recession of not wanting to maintain overhead and leverage.