Hostname: page-component-cd9895bd7-gbm5v Total loading time: 0 Render date: 2024-12-28T17:12:18.410Z Has data issue: false hasContentIssue false
  • English
  • Français

The Impact of a Low-Wage Strategy on State Economic Development

Published online by Cambridge University Press:  25 January 2021

Susan B. Hansen
Susan B. Hansen*
Affiliation:
University of Pittsburgh
Get access Rights & Permissions [Opens in a new window]

Abstract

The American states have pursued several different approaches to create jobs and foster economic development, including reducing the social cost of labor. I show that state labor costs are markedly lower in 1995 than in 1970, based on a factor analysis of wages and state regulations affecting unions and the cost of labor. Corporate low-wage strategies, international and interstate competition for business, and the growing weakness of labor unions are posited to account for this. But regression analysis shows that lower labor costs have had no significant impact on rates of job creation since 1980, have reduced unemployment only slightly, and have been less effective in the latter respect than either tax cuts or other economic development policies. Moreover, reducing labor costs can have adverse consequences, such as rising income inequality, slower growth in gross state product and productivity, and a less competitive position for states in the international economy.

Type
Research Article
Information
State Politics & Policy Quarterly , Volume 1 , Issue 3 , Fall 2001 , pp. 227 - 254
Copyright
Copyright © 2001 The American Political Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Baker, Gerard, and Despeignes, Peronet. 2000. “U.S. Productivity Growth Surges.” Financial Times, August 9, 1.Google Scholar
Bartik, Timothy J. 1991. Who Benefits from State and Local Economic Development Policies? Kalamazoo, MI: Upjohn Institute for Employment Research.CrossRefGoogle Scholar
Bartik, Timothy. 1999. “Displacement and Wage Effects of Welfare Reform.” Kalamazoo, MI: Upjohn Institute for Employment Research. <www.upjohninst.org/brtkppr> 3/17/99.+3/17/99.>Google Scholar
Belluck, Pam. 2000. “Short of People, Iowa Seeks to Be Ellis Island of Midwest.” New York Times, August 28, A1, 12.Google Scholar
Belman, Dale. 1992. “Unions, the Quality of Labor Relations, and Firm Performance.” In Unions and Economic Competitiveness, eds. Mishel, Lawrence and Voos, Paula B.. Armonk, NY: M. E. Sharpe.Google Scholar
Bernstein, Jared, and Mishel, Lawrence. 1994. “Trends in the Low-Wage Labor Market and Welfare Reform.” Washington, DC: Economic Policy Institute.Google Scholar
Berry, Mary F. 1986. Why ERA Failed: Politics, Women's Rights, and the Amending Process of the Constitution. Bloomington, IN: Indiana University Press.Google Scholar
Blank, Rebecca M., ed. 1994. Social Protection versus Economic Flexibility: Is There a Tradeoff? Chicago: University of Chicago Press.CrossRefGoogle Scholar
Bohrnstedt, George W., and Stecher, Brian M.. 1999. “Class Size Reduction in California 1996-1998.” Sacramento, CA: CRS Research Consortium.Google Scholar
Book of the States. Various years. Lexington, KY: Council of State Governments.Google Scholar
Brace, Paul. 1993. State Government and Economic Performance. Baltimore, MD: Johns Hopkins University Press.Google Scholar
Braden, Bradley R. 1988. “Increases in Employer Costs for Employee Benefits Dampen Dramatically.” Monthly Labor Review, July, 3-7.Google Scholar
Branigin, William. 1997. “The Return of the American Sweatshop.” Washington Post national weekly edition, Feb. 24, 6–7.Google Scholar
Brierly, Allen B., and Feiock, Richard C.. 1998. “Economic Growth and Unemployment in the American States: The Case of the Missing Multiplier.” Paper presented at the annual meeting of the Midwest Political Science Association, Chicago.Google Scholar
Card, David, and Krueger, Alan B.. 1995. Myth and Measurement: The New Economics of the Minimum Wage. Princeton, NJ: Princeton University Press.Google Scholar
Card, David, and Blank, Rebecca M.. 2000. Finding Jobs: Work and Welfare Reform. New York: Russell Sage.Google Scholar
Clarke, Susan E., and Gaile, Gary L.. 1989. “Moving toward Entrepreneurial Economic Development Strategies.” Policy Studies Journal 16: 574–590.CrossRefGoogle Scholar
Clymer, Adam. 1991. “Awaiting Congress in Capital.” New York Times, Sept. 9, A11.Google Scholar
Coffey, Peter. 1999. NAFTA - Past, Present, and Future. Boston, MA: Kluwer Academic Publishers.CrossRefGoogle Scholar
Cohen, Roger. 1999. “To Spur German Economy, Schroder Offers Veer to Right.” New York Times, July 25, A3.Google Scholar
Cose, Ellis. 1999. “The Good News about Black America.” Newsweek, June 7, 303–340.Google Scholar
Congressional Quarterly. 1999. Issues for Debate 1999. Washington, DC: CQ Press.Google Scholar
Cummings, Stephen D. 1998. The Dixification of America: The American Odyssey into the Conservative Economic Trap. Westport, CT: Praeger.Google Scholar
Donahue, John A. 1997. The Disunited States. New York: Basic Books.Google Scholar
Dye, Thomas R. 1980. “Taxes, Spending, and Economic Growth in the American States.” Journal of Politics 42: 1085–1107.CrossRefGoogle Scholar
Dye, Thomas R. 1988. “Explaining Government Contraction: A Demand-Side Model for Education in the States.” Western Political Quarterly 41: 779–790.CrossRefGoogle Scholar
Economist. 1998. “A Busted Flush: How America's Love Affair with Casino Gambling Turned to Disillusionment.” Economist 342 (January): 8–10.Google Scholar
Eisinger, Peter. 1988. The Rise of the Entrepreneurial State: State and Local Economic Development Policy in the United States. Boulder, CO: Westview Press.Google Scholar
Eisinger, Peter. 1994. “State Economic Development in the 1990s: Politics and Policy Learning.” Economic Development Quarterly 9: 146–158.CrossRefGoogle Scholar
Elling, Richard C. 1992. Public Management in the States. Westport, CT: Praeger.Google Scholar
Falk, W. W., and Lyson, T. A.. 1988. Hi Tech, Low Tech, No Tech: Recent Industrial and Occupational Change in the South. Albany, NY: SUNY Press.Google Scholar
Federation for American Immigration Reform [FAIR]. 2000a. “The High-Tech Worker Shortage is a Sham.” <www.fairus.org/html/04150712> 8/8/00.+8/8/00.>Google Scholar
Federation for American Immigration Reform [FAIR]. 2000b. “Immigration Lowers Wages for American Workers.” <www.fairus.org/html/04148711> 8/8/00.+8/8/00.>Google Scholar
Fosler, R. Scott. 1988. The New Economic Role of the American States. New York: Oxford University Press.Google Scholar
Fox, Sharon E., and Lee, Jeong Hwa. 1996. “Determinants of Foreign Firm Location Decisions in the United States, 1985-1990.” American Politics Quarterly 24: 81–104.CrossRefGoogle Scholar
Freeman, Richard B., and Katz, Lawrence F.. 1994. “Rising Wage Inequality: The United States vs. Other Advanced Countries.” In Working Under Different Rules, ed. Freeman, Richard B.. New York: Russell Sage.Google Scholar
Friedman, Joseph, Gerlowski, D., and Silberman, J.. 1992. “What Attracts Foreign Direct Investment in the United States?” International Regional Science Review 11: 137–154.Google Scholar
Galbraith, James K. 1998. Created Unequal: The Crisis in American Pay. New York: Free Press.Google Scholar
Gilens, Martin. 1999. Why Americans Hate Welfare: Race, Media, and the Politics of Anti-poverty Policy. Chicago: University of Chicago Press.CrossRefGoogle Scholar
Gilroth, Robert P. 1998. Jobs and Economic Development: Strategies and Practice. Thousand Oaks, CA: Sage.Google Scholar
Gimpel, James G. 1999. Separate Destinations: Migration, Immigration, and the Politics of Places. Ann Arbor, MI: University of Michigan Press.CrossRefGoogle Scholar
Golden, Miriam. 1997. Heroic Defeats: The Politics of Job Loss. New York: Cambridge University Press.Google Scholar
Grady, Dennis O. 1987. “State Economic Development Incentives: Why Do States Compete?” State and Local Government Review 19: 86–94.Google Scholar
Grady, Dennis. 1988. “Governors and Markets: Corporate Recruitment from the Gubernatorial Perspective.” In Richard Hula, ed., Market-Based Public Policy. New York: St. Martin's.Google Scholar
Gray, Virginia, and Lowery, David. 1996. The Population Ecology of Interest Representation: Lobbying Communities in the American States. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
Greenhouse, Steven. 2000. “Foreign Workers at Highest Level in Seven Decades.” New York Times, September 5, A1, 12.Google Scholar
Greenhouse, Steven. 2001. “Unions See Sign of Trouble in Bush's Choice for Labor.” New York Times, January 4, A18.Google Scholar
Hansen, Susan B. 1984. “The Effects of Economic Policies on State Economic Growth.” Paper presented at the annual meeting of the American Political Science Association, Washington, DC.Google Scholar
Hansen, Susan B. 1990. “Industrial Policies in the American States: Historical and Comparative Perspectives.” In The Politics of Industrial Recruitment, eds. Yanarella, Ernest J. and Green, William C.. Westport, CT: Greenwood Press.Google Scholar
Hansen, Susan B. 1999a. “Life is Not Fair: Gubernatorial Ratings and State Economic Performance.” Political Research Quarterly 32: 167–188.Google Scholar
Hansen, Susan B. 1999b. “Governors' Job Performance Ratings and State Unemployment: the Case of California.” State and Local Government Review 31: 7–17.CrossRefGoogle Scholar
Hanson, Russell L. 1993. “Bidding for Business: A Second War Between the States?” Economic Development Quarterly 7: 183–198.CrossRefGoogle Scholar
Herzik, Eric, and Brown, Brent W.. 1991. Gubernatorial Leadership and State Policy. New York: Greenwood Press.Google Scholar
Herzog, Henry W., and Schlottman, Alan M.. 1991. Industry Location and Public Policy. Knoxville, TN: University of Tennessee Press.Google Scholar
Hirsch, Barry, and MacPherson, David. 1997. Union Membership and Earnings Data Book: Compilations from the Current Population Survey. Washington, DC: BNA.Google Scholar
Hofstadter, Richard. 1955. The Age of Reform: Bryan to F. D. R. New York: Knopf.Google Scholar
Holtz-Eakin, Douglas. 1992. “Solow and the States: Capital Accumulation, Productivity, and Economic Growth.” Cambridge, MA: National Bureau of Economic Research. Working Paper # 4114.CrossRefGoogle Scholar
Hornbeck, David W., and Salamon, Lester M.. 1991. Human Capital and America's Future. Baltimore, MD: Johns Hopkins University Press.Google Scholar
Hughes, Joseph J., and Perlman, Richard B.. 1984. The Economics of Unemployment. Brighton, UK: Wheatsheaf Books.Google Scholar
Hyclak, Thomas. 1999. Rising Wage Inequality: The 1980s Experience in Urban Labor Markets. Kalamazoo, MI: Upjohn Institute.Google Scholar
Jackson, Maggie. 1999. “Workers Once Unwanted Now Needed: Disabled, Unskilled, Minorities Benefitting in Job Boom.” Pittsburgh Post-Gazette, July 5, A6.Google Scholar
Kmenta, Jan. 1986. Elements of Econometrics. 2nd ed. New York: MacMillan.Google Scholar
Kolderie, Ted, and Blazer, William A.. 1988. “A High-Quality Public Sector as a Strategy for Economic Development.” In The New Economic Role of the American States, ed. Fosler, R. Scott. New York: Oxford University Press.Google Scholar
Krugman, Paul, 1994. Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations. New York: W. W. Norton.Google Scholar
Lemov, Penelope. 1997. “The Workers' Comp Tug of War.” Governing, January, 24-5.Google Scholar
Leonhardt, David. 2000. “As Prison Labor Grows, So Does the Debate.” New York Times, March 19, 1, 22.Google Scholar
Lewis, Dan A., and Maruna, Shadd. 2000. “The Politics of Education.” In Politics in the American States: A Comparative Analysis, eds. Gray, Virginia, Hanson, Russell L., and Jacob, Herbert, 7th ed. Washington, DC: CQ Press.Google Scholar
Lowery, David, and Gray, Virginia. 1992. “Holding Back the Tide of Bad Economic Times: The Compensatory Impact of State Industrial Policy.” Social Science Quarterly 73: 483–495.Google Scholar
Mahtesian, Charles. 1994. “Romancing the Smokestack.” Governing, November, 36-40.Google Scholar
Milward, H. Brinton, and Newman, Heidi. 1990. “State Incentive Packages and the Industrial Location Decision.” In The Politics of Industrial Recruitment, eds. Yanarella, Ernest and Green, William. New York: Greenwood.Google Scholar
Mucciaroni, Gary. 1992. The Political Failure of Employment Policy, 1945-1982. Pittsburgh, PA: University of Pittsburgh Press.Google Scholar
Nasar, Sylvia. 1999. “Where Joblessness is a Way of Making a Living.” New York Times, May 9, 5.Google Scholar
National Association of State Development Agencies. 1986. Directory of Incentives for Business Investment and Development in the American States. Washington, DC: Urban Institute.Google Scholar
National Governors Association. 1992. Time for Results: The Governors' 1991 Report on Education. Washington, DC: NGA.Google Scholar
Newman, Robert J. 1983. “Industry Migration and Growth in the South.” Review of Economics and Statistics 65: 440–449.CrossRefGoogle Scholar
Office of Technology Policy. 1997. “America's New Deficit: The Shortage of Information Technology Workers.” Washington, DC: U.S. Government Printing Office.Google Scholar
Organization for Economic Cooperation and Development. 1995. The OECD Jobs Study: Taxation, Employment, and Unemployment. Paris: OECD.Google Scholar
O'Toole, James. 2000. “Labor Seeks Rise in Political Clout.” Pittsburgh Post-Gazette. August 14, A5.Google Scholar
Page, Benjamin I. 1997. “Trouble for Workers and the Poor: Economic Globalization and the Reshaping of American Politics.” Evanston, IL: Northwestern University Joint Center for Poverty Research.Google Scholar
Paulsen, George E. 1996. A Living Wage for the Forgotten Man: The Quest for Fair Labor Standards, 1933-1941. Selinsgrove, PA: Susquehanna University Press.Google Scholar
Pearce, Diana M. 1985. “Toil and Trouble: Women Workers and Unemployment Compensation.” Signs 10: 439–460.CrossRefGoogle Scholar
Peterson, Paul E. 1995. The Price of Federalism. Washington, DC: Brookings.Google Scholar
Pierson, Paul. 2000. “Three Worlds of Welfare State Research.” Comparative Political Studies 33: 791–821.CrossRefGoogle Scholar
Porter, Michael. 1985. The Competitive Advantage of Nations. New York: Free Press.Google Scholar
Radcliff, Benjamin, and Saiz, Martin. 1998. “Labor Organization and Public Policy in the American States.” Journal of Politics 60: 113–122.CrossRefGoogle Scholar
Rotstein, Gary. 2000. “Social Security Changes to Help Keep Older Workers on the Job.” Pittsburgh Post-Gazette, March 19, B1, 3.Google Scholar
Russakoff, Dale. 2000. “States Bury Clinton Plan for Paid Paternal Leave.” Washington Post, July 31, A17.Google Scholar
Saiz, Martin, and Clarke, Susan E.. 1999. “Economic Development and Infrastructure Policy.” In Politics in the American States: A Comparative Analysis, eds. Gray, Virginia, Hanson, Russell, and Jacob, Herbert. 7th ed. Washington, DC: CQ Press.Google Scholar
Schmitt, Eric, Uchitelle, with Louis. 2000. “Republican Leader Makes Concession on Minimum Wage.” New York Times, August 2, A1.Google Scholar
Schwarz, Joel. 1988. America's Hidden Success. 2nd ed. New York: W. W. Norton.
Sexton, Patricia C. 1991. The War on Labor and the Left. Boulder, CO: Westview Press.Google Scholar
Simon, Julian. 1999. The Economic Effects of Immigration. 2nd ed. Ann Arbor, MI: University of Michigan Press.Google Scholar
Smith, David A., and Levine, Marc V.. 1985. “Political Limits on a Progressive Industrial Policy.” In Industrial Policy in the United States and France, ed. Zuker, Sharon. New York: Praeger.Google Scholar
Statistical Abstract of the U.S. Various years. Washington, DC: U.S. Government Printing Office.Google Scholar
Stein, Robert M. 1990. “Economic Voting for Governor and U.S. Senator: The Electoral Consequences of Federalism.” Journal of Politics 52: 29–53.CrossRefGoogle Scholar
Stetson, Dorothy M. 1997. Women's Rights in the U.S. A. 2nd ed. New York: Garland.Google Scholar
Storper, Michael. 1996. The Regional World: Territorial Development in a Global Economy. New York: Guilford Press.Google Scholar
Thurow, Lester C. 1999. Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledge-Based Economy. New York: HarperCollins.Google Scholar
Uchitelle, Louis. 1997. “Welfare Recipients Taking Jobs Often Held by the Working Poor.” New York Times, April 1, A1, 10.Google Scholar
Uchitelle, Louis. 2000. “I. N. S. is Looking the Other Way as Illegal Immigrants Fill Jobs.” New York Times, March 3, A1, C14.Google Scholar
U.S. Bureau of the Census. 1980 and 1997. U.S. Merchandise Trade. Washington, DC: U.S. Government Printing Office.Google Scholar
U.S. Bureau of Economic Analysis. 1981 and 1997. Survey of Current Business. Washington, DC: U.S. Government Printing Office.Google Scholar
U.S. Immigration and Naturalization Service. 1996. Statistical Yearbook 1996. Washington DC: U.S. Government Printing Office.Google Scholar
Vedder, Richard K., and Gallaway, Lowell E.. 1993. Out of Work: Unemployment and Government in 20th Century America. New York: Holmes and Meier.Google Scholar
Volgy, Thomas, Schwarz, John E., and Imwalle, Lawrence. 1996. “In Search of Economic Well-Being: The Relation between Worker Power and Economic Returns in Ten Industrialized Nations.” American Journal of Political Science 40: 1233–1252.CrossRefGoogle Scholar
Weber, Ronald E., and Brace, Paul, eds. 1999. American State and Local Politics: Directions for the 21st Century. Chatham, NJ: Chatham House.Google Scholar
Weil, David. 1994. Turning the Tide: Strategic Planning for Labor Unions. New York: Lexington Books.Google Scholar
Weir, Margaret. 1998. “Wages and Jobs: What is the Public Role?” In The Social Divide: Political Parties and the Future of American Government, ed. Weir, Margaret. Washington, DC: Brookings.Google Scholar
White, Sammis B. 1987. “Reservation Wages: Your Community May Be Competitive.” Economic Development Quarterly 1:18–29.CrossRefGoogle Scholar
Wilson, Graham K. 1985. Business and Politics: A Comparative Introduction. Chatham, NJ: Chatham House.CrossRefGoogle Scholar
Wilson, Kenneth G. 1995. The Impact of Unions on United States Economy-Wide Productivity. New York: Garland.Google Scholar
Wise, Lois R. 1988. Labor Market Policies and Employment Patterns in the United States. Boulder, CO: Westview Press.Google Scholar
WuDunn, Sheryl. 1996. “Downsizing Comes to Japan, Fraying Old Workplace Ties.” New York Times, June 12, C1, 6.Google Scholar
Yanarella, Ernest J., and Green, William C., eds. 1990. The Politics of Industrial Recruitment. Westport, CT: Greenwood Press.Google Scholar