When the minimum wage goes to $15 an hour "you kill jobs," says Andrew Puzder—"businesses close, businesses reduce staff and automate, and businesses reduce the hours of the employees they have."
But "what you can't measure, which is really what hurts economic growth…is the number of restaurants that don't open."
Puzder is best known as the former head of CKE Restaurants, the parent company of fast fast-food chains Hardee's and Carl's Jr. When he was named CEO in 2000, the company was on the verge of bankruptcy. Puzder focused his attention on improving the customer experience, improving the food quality, simplifying the menu, and emphasizing good service. Ten years later, CKE had quadrupled in value.
Puzder is known for his free-market views on labor issues, and in 2010, he co-authored Job Creation: How It Really Works and Why Government Doesn't Understand It.
Last year, Donald Trump nominated Puzder as U.S. Secretary of Labor, but his confirmation was broadly contested by progressive groups, and he ultimately withdrew.
Puzder was born in 1950 and grew up in a working-class family in northeastern Ohio. He dropped out of Kent State to do what every Cleveland area Baby Boomer kid dreamed of—playing in a rock and roll band.
Reason's Nick Gillespie sat down with Puzder at FreedomFest 2017, the annual libertarian conference in Las Vegas.
Edited by Ian Keyser. Cameras by Meredith Bragg and Justin Monticello. Music by Kai Engel.
This is a rush transcript. Check all quotes against the audio for accuracy.
Nick Gillespie: Andrew Puzder, thanks for talking to Reason.
Andrew Puzder: Great to be here Nick, thank you.
Gillespie: You were nominated for labor secretary and withdrew your nomination. What happened there?
Puzder: After Betsy DeVos went through such a litigious confirmation process, senators who had voted for her, like Susan Collins, from liberal states, were then inundated with emails, phone calls, they would go home and they had protesters in their offices or at their town halls, people who had never really seen protesters before. Schumer identified me as the target of the left, and so they put on a lot of pressure. The media was horrific, this fake news thing that Trump talks about is so true, and when you're a nominee for the cabinet you can't defend yourself on TV. You can't tweet. I think I sent out a tweet once thanking Jeb Bush for supporting me, and everybody came down on me like I'd done something horrific. You can't even defend yourself, you've got to depend on surrogates.
That went on for a longer period of time than it should have, because while the press said, "Puzder didn't file his ethics documents, there must be a problem," the reality is, I was probably the first guy to file. I filed January 3rd, but the Office of Government Ethics wouldn't respond. For six or seven weeks my document sat there, and the Democrats wouldn't let the committee, wouldn't let Lamar Alexander's committee, schedule a hearing until they got something from OGE on my ethics documents. They've let Betsy DeVos go through without that, but me they wouldn't let go through.
For six weeks the left got to beat up on me, Schumer identified me as their target, as I said, and near the end some of the more liberal Republicans got nervous, and when you don't have 50 votes you can't win. I got a call from Vice President Pence telling me that Mitch McConnell told them that they had fallen, I think, a vote or two below 50. We knew we were never going to get more than 50, because there were two who, they didn't vote for Betsy, they weren't going to vote for me. I said, "Look, I'll withdraw. I don't want the president to have a failure on the Senate floor that has my name attached to it. I should just withdraw." He said, "Let me see, let me make sure that we don't have it, because we'd love you to do this, but let me check." He went and checked and called me back a few hours later and he said, "It's going to be very, very hard to get to 50," and I said, "Well I'm not going to tilt at windmills, I'll just withdraw." So I withdrew.
Gillespie: Let's talk about the thesis of your book, which gets at a central issue of the 21st century economy, which is job creation, and more broadly economic growth. How does job creation work, and why doesn't the government get it?
Puzder: Progressives don't get it because that's not their objective. Their objective isn't to create economic growth or to create more jobs, their objective is to take what we have in this country now and divide it more equally. You don't hear Elizabeth Warren or Bernie Sanders out there talking about, we need 3% GDP growth, because they don't really have policies that would generate 3% GDP growth. We advocated tax reform, reduction of regulations, better energy policy, and reduced spending, so really four of the five legs of the Trump plan, the 5th leg being, with respect to President Trump, being repeal and replacement of Obamacare, or health care reform.
Healthcare reform wasn't, we didn't realize in 2010 what a terrible effect it was going to have on the economy or on everyday Americans with premiums and deductibles going up, so we didn't cover that in the book, but we covered everything else, and talked about how what you really need to do to generate job growth. It's really not a very complicated formula. If you're looking to invest, if you're going to take money you have, and you're going to invest it in a business, there's a risk. The risk is, you'll lose everything that you invest. You want to go in with the idea you get a good return. Normally businesses look for about a 20% return, but maybe 15 you would invest because interest rates are so low, so if you put the money in bonds or stocks maybe you just get a 5% or 6% return. If you can get that 15% or 20% return then your investment's worth making the investment.
When you look to invest you look at two things: you look at what revenues your business will generate in the location that you're at, let's take a restaurant for example, and you look at the cost of running it, and then you see if you're going to make enough profit to give you a return on that investment. If revenues come down because consumers don't have money, either because of tax policy, their taxes or increased, or what's happened in the last few years is they've got to pay these exorbitant insurance premiums and these very high deductibles, which takes money out of people's pockets, if you know that and you're projecting out five years, you're going to project lower revenues.
On the cost side, if minimum wage is going up and there's overtime regulation coming in and your business taxes are going up, well then you're going to project higher cost. If revenues are down and costs are up then your margin for making a profit sinks considerably and you may not invest. If you implement policies that reduce taxes, if you implement policies that reduce regulation, so that you're increasing revenues to the business, and you're decreasing the cost of operating the business, what you see is, not surprisingly, economic growth.
Gillespie: Yeah, let's talk about some of that stuff. Workforce participation rates are declining, especially among men. They have actually kind of been growing or pretty level among women. The overall workforce participation rate peaked in the late 1990s, around 68% for men. In the early 50s 90% of men were in the workforce. Now it's down to about 70, it's under 70%. What's going on there? Because it's longer than just the 21st century, which has seen historically low growth in America. Why aren't more men working in the labor market? If you were secretary of labor, and certainly as a CEO of a fast-food company, where are the men going, that they're not working?
Puzder: There's a couple of answers. Answer number one is that you're talking about percentages of people in the labor force, so even if the economy's growing, the number of men in the labor force can be increasing, even though the percentage is coming down, because as you know, since the early 80s, more women have been coming into the labor force. As more women come in, even if you're growing, the number of men, you're still going to have a smaller percentage because more women are also coming in. We've seen some of that. We've also seen now, with people in my generation, the baby boomer generation, we've seen people retiring. I think a more serious problem is, we've simply seen people dropping out of the labor force because they can't find good jobs.
There was a real rash over the last 18 years of part-time jobs, low-wage jobs that were created in the economy, which is why you see a push for things like minimum increases, or overtime. What the Democrats are trying to do, what the progressives are trying to do, is since they can't produce good-paying jobs because they've done things that shrink the potential for businesses to grow, shrink economic growth, what they try and do is take the jobs that aren't as good-paying, the lesser-paying, lesser-skilled jobs, and elevate those up, which makes no economic sense. You've got a job that produces so much benefit, you can't compensate people above that limit. What you're seeing is people dropping out of the labor force …
As a matter of fact, Larry Summers said that two of the things that contribute to … Larry Summers, as you know, a left-wing economist from Harvard, Obama administration-
Gillespie: Well I don't know if he's left-wing, but he's a liberal who was in the Obama administration.
Puzder: He's sure a whole lot more left than he is center. In any event, even he said unions contribute to unemployment, and government benefits contribute to unemployment. You do what's in your economic best interest; if your economic best interest is to accept government benefits rather than to work because you can't find a good paying job, that's what you're going to do.
Gillespie: Particularly in the fast food industry, which you're very well acquainted with, the push for, the fight for 15, for a $15 minimum wage, which in many places would effectively double the existing minimum wage, from the point of view of somebody who ran a company who would be directly affected by that, what is the effect of saying we're going to double the wages, or we're going to go up by 50% of the wages by government mandate? Because over the past 10 years we've seen a lot of people saying, "You know what, actually it doesn't have any effect, or it might have a positive effect." What is your experience with that?
Puzder: Those are not people that own businesses. Number one, I'm actually in favor of increasing the minimum wage. I'm in favor of increasing it, [up to] the point where it starts to kill entry-level jobs, because entry level-jobs are very important for young Americans. I started out at a Baskin-Robbins, thank God I had that opportunity. Just to clear up all the fake press that was out there, I've been trying to convince the restaurant industry and the franchise industry, the trade groups, to get behind increasing the minimum wage, but only to the point where you didn't kill entry level jobs. $15 an hour-
Gillespie: What would that mean? What would that be at?
Puzder: The Bureau of Labor Statistics, about two years ago, came out with … Excuse me, the Congressional Budget Office, came out with a study about two years ago that said, at $9 an hour you'd lose about 100,000 nationally; at $10 an hour you'd lose 500,000 jobs. 500,000 jobs is too much. Has that number moved in the last two years? Probably, but I need another study to tell you. It can certainly be higher than seven and a quarter, but at 15 you kill jobs. Three things could happen. One is, businesses close because they're no longer profitable; two is, they reduce labor, either by cutting people's hours or reducing their staff; or three is, they automate.
What we've seen, there are three recent studies. There was a study in December of 2015 by the Federal Reserve Board in San Francisco, a report out of the Federal Reserve Board, not a bastion of conservative economic thought, and they looked at all the studies of minimum wage and concluded that significant increases damage lesser-skilled workers, the very workers it's supposed to help. San Francisco went from about a $10 to $11 minimum wage up to 13. Harvard Business School came out with a report just a couple months ago, again not a bastion of conservative economic thought, Harvard Business School, that said every dollar that the minimum wage went up in San Francisco, there was a 4% to 10% increase in the closure of restaurants. If you're going from 10 to 15, that's a lot of restaurants. Lastly Seattle. Seattle went to $13, up from $10 or $11-
Gillespie: And it'll eventually go to 15.
Puzder: And eventually will go to 15, like San Francisco. University of Washington, again a left-leading institution, came out and said that just going to 13 had reduced wages for low-skilled workers by 9% and deprived them of $125 a month. They can't afford that.
What's happening is, businesses close, businesses reduce staff and automate, and businesses reduce the hours of the employees that they have. What you can't measure, which is really what hurts economic growth, which is really kind of what the book was trying to get to, is the number of restaurants that don't open because you've closed that gap. You no longer can make it easy for people to make a profit and take the risk of making an investment. What we really don't know is, how many businesses didn't open in those cities that would've employed people. $15 an hour is a real economic disaster.
The point of it is, quite honestly, when progressives promote this, they're not out there saying this is going to help economic growth, or that there's going to be more jobs; what they're trying to do is divide what exists more equally. They're killing growth.
Gillespie: That University of Washington study actually proves your earlier point that the earlier increase in Seattle from, I think it was $9 to $10 or something like that, it did not have the negative labor effect, so there is probably a threshold over which you really go over the falls.
Puzder: There's room to do this, but don't go nuts. If your point is to help working class people, to help lesser skilled workers, to create entry-level jobs, you can do that.
Gillespie: Wouldn't it be better, and this is from a pure policy place, Reason is a libertarian magazine, I tend to believe that the best, or the proper, minimum wage is zero, that it should be set by individuals, but that aside, it's kind of weird that you would cost that onto businesses, as opposed to saying as a society we believe that people should have a certain minimum level of income. Why wouldn't taxpayers pay for that through supplemental transfers to lower income people?
Puzder: I think that there is a very good system for doing that. The earned income tax credit is something I'm very supportive of.
Gillespie: It's got a 30% error rate in payments though, so that's like many government programs, it's got its issues.
Puzder: The current earned income tax credit program is subject to a lot of fraud, it's not very well put together, but it's lifted millions of people out of poverty, including young people. More importantly, what minimum wage increases did, and this is kind of a hidden story, and I haven't talked about it much, but I have talked about it, in our restaurants in California, when the minimum wage went to $10 an hour, and it's now going to 15, but it went to 10, I had dinner with our general managers as I often did, and district managers, and asked-
Gillespie: Did you eat at a Carl's Jr?
Puzder: No, when I had the dinners I would take them to someplace super nice to show how important they were. Not that Carl's wasn't super nice, but they were there a lot.
Gillespie: At In-N-Out Burger, right?
Puzder: No, we'd go to Fleming's or Morton's or something. I asked them, "What are the biggest problems, what are you seeing?" Virtually every one of them said, "People coming to us and asking to have their hours reduced." I said, "Why on earth would people be coming at $10 an hour why would people want to work less?" Said, "They come in and they say, 'We're going to lose our Medicaid, we're going to lose our food stamps, we're going to lose our Section 8 housing.'"
You've now created an economic incentive for people not to work more. Earned income tax fixes that. Earned income tax, you do get a level, you do get a subsistence level, but everything above that, you never earn more than your subsistence level decreases. Then at some point you earn enough that you don't need the subsistence level, and you work your way out of welfare. Right now we've got people, they call it the "welfare cliff," if you go too far you go off the cliff. We've got people trapped in a welfare society because of things like the minimum wage, which quite honestly, as I said, the left, the progressives, don't intend to create jobs.
Gillespie: You mentioned automation. There's a lot of chatter these days, it recurs with regularity, that robots are going to take our jobs, automation is going to take our jobs; are people right to be worried about being displaced permanently by automation?
Puzder: Yes, and I want to make it clear, I did an interview with a leftist magazine called Business Insider, they're really … I should never have done the interview. They asked me about minimum wage, and they said, "Why would somebody automate if the wage goes up?" I gave them the reasons and I said, "But there's also these other reasons, like that you want people because your customers feel better dealing with them, it's better to build a culture, there are lots of reasons not to automate too." Of course they ran only the favorable things I said about automation and accused me of wanting to completely automate all of our restaurants, none of which I had ever said.
Gillespie: The ultimate would be if you had robot customers, because they would never get full.
Puzder: Yes. With self-driving cars, who knows, you may.
Gillespie: You can get humans out of the prostitution business together and they can get on with their lives.
Puzder: What I'm going to try and do is explain why people automate. This doesn't mean I think they should automate.
Gillespie: But they're going to.
Puzder: They're going to. They're going to automate because at reduced prices it's more convenient, you're going to have self-driving cars. Right now you have ordering kiosks in restaurants, which quite honestly, while people my age might not be as comfortable using them, although I'm getting more comfortable, my kids, that's all they want to use. They live off their iPhones-
Gillespie: It's amazing how quickly this changes. We're both old enough to remember a pre-bar-code scanning checkout cashier at a supermarket, and when that was brought in people were, "Oh my God, this is the end of employment in supermarkets, because you don't need that." Obviously it doesn't quite work that way.
Puzder: It doesn't, and I do think there's a threat to the current economy. There's a threat to people … We're not training people for the jobs that exist. There are six million job openings right now, according to BLS, Bureau of Labor Statistics. That's a historic high. There's never been six million job openings. Why then is labor participation so low? The reason is, because people aren't trained for those jobs. There are jobs in computer programming, there's jobs for welders, there's jobs for construction workers. There are jobs out there that people aren't getting the training for or don't want. There's a stigma to some manufacturing jobs, although now they've become very sophisticated jobs.
When I was a kid you could probably be productive in a plant in about a week; now it takes you a month to even figure out where the men's room is or how to work the machines. The world's changed. We need apprenticeship programs, we need internships, we need the kinds of things that President Trump is promoting, to get these people trained for the jobs that exist. If we can continue to train people for the jobs that exist, I think we can deal with a lot of this. You're going to need people who fix those robots, you're going to need people that design them, you're going to need people that program them. I can tell you, I don't know, I'm sure you have a computer; how many times does it break down and you wish there was a guy in your house that could tell you what to do with your computer?
Gillespie: Sadly I'm that guy.
Puzder: Yeah, me too. But you go in these restaurants and these are complicated pieces of machinery and they are abused. Customers are not-
Gillespie: They're the worst customers, I just wish they would go away.
Puzder: They spill sodas on them, it's all kinds of things.
Gillespie: Are workers worse than they used to be? There's definitely training, and you talked about apprenticeship, you talked about stigmas. In the abstract, and even Donald Trump talks about bringing back manufacturing jobs, everybody likes factory jobs as long as they're not the ones pouring steel or something like that. We're not training people for jobs that exist, but is there a larger culture of work that is, I wouldn't say under attack, but has gone missing, where people understand that working is more than being given a job and then being given a paycheck. I guess my sort answer is, are American workers worse than they used to be?
Puzder: I don't think so. I think the jobs are more complicated. From the end of the Civil War up until the end of the 1920s or 30s, we had a huge influx of immigrants coming here for these high-paying factory-type jobs, where you could go and work on an assembly line, you're doing the same thing all day, it's a low-skilled job, but it was good paying. All those low-skilled good paying jobs are now being done by machinery. If you want to work in a manufacturing plant now you've got to have some skills. All we need to do is train people so they have … I don't think the labor force is worse, I think it's, the labor force needs to be better trained for the jobs that exist.
Gillespie: What would you, if you were labor secretary, what are the types of programs or policies that would allow for that to happen?
Puzder: As I said, the government spends about 30 billion a year on jobs training; the private sector spends about 300 billion. There are job training programs out there by the people who have the jobs, and know what training people need. I really wanted to get the Department of Labor working hand in glove with the private sector, which again is something I understood, having been in the private sector. But get the Department of Labor, instead of trying to do its own independent training programs, kind of wasting government money, because quite honestly the programs that Department of Labor's used in the past have not been successful, work with the people who know what they're doing, who know what the jobs are, who know what training is needed.
Gillespie: Do you think from a conservative or a libertarian point of view, the companies should be training the employees that they want, it shouldn't be costed onto the taxpayer, right?
Puzder: Right, that's exactly right, but we should also be working to make sure that the people who are unemployed, particularly youth in our inner cities, we have to get … this was going to be a major focus for me. People in the inner cities need to feel like they have a buy-in to the American dream. Right now they don't feel they have. There are jobs in the inner city, there's not sufficient training for people in the inner city. Like I said, I started out at Baskin-Robbins. Actually one of my proudest days in my professional career was when the franchisee who owned and managed that store called me into the office and said, "You're now the assistant general manager, you can open in the morning," handed me a key. I walked in the next morning, within a half an hour that was the cleanest Baskin-Robbins in America.
That's the kind of pride, the kind of accomplishment, the kind of self-satisfaction that keeps you out of gangs, keeps you in your family, keeps you off the streets, keeps you in school. It allows you to participate in the American dream. If you don't have that experience, you really don't know what it's like, you really don't know what it means. We need to create those opportunities for inner city kids. Look at Chicago, President Obama's home city. It's a disaster. There are war zones in our cities. This is because people don't feel they're part of the process, they don't feel they can achieve in the current American system. We've got to get rid of these progressive policies, generate economic growth, create opportunity, and bring people in.
Gillespie: Do you think there's an economic mobility crisis in the country? I'm 53, and for as long as I can remember I keep hearing that the next generation is the first generation in America that will grow up with a lower standard of living than their parents, and that's never really come true. Is it finally arriving, or do you think that that's a kind of hyperbolic statement?
Puzder: I think eight years of GDP growth of 2% or less has created a real problem in that respect.
Gillespie: Right. Can we call it 16 years, because it wasn't like Bush was kickin' it.
Puzder: No, but he didn't average 2%. We got a president that didn't have … By the way, getting back to Larry Summers, Jason Furman, back in 2009 and '10, after the stimulus was invested, they were predicting 4% GDP growth. 4% GDP growth, because they thought they were on this economic cycle. They didn't realize there is no economic cycle. You're not going to go up unless you have good policies. There can be movement, there's an up-and-down like a saw, maybe there's a saw economic policy, but they thought they were on the upswing, and they never got there. They never got to a year of 3% GDP growth. 1% GDP growth is like a million jobs. If you're at two instead of four, that's 2 million jobs a year.
Gillespie: I don't question that, but in the 21st century we've seen, and not just in America, but especially in America, both under Bush and Obama, historically weak average economic growth. You see the same thing in Europe. Even in places like China it's been slowing down. Some economists say, "Look, those glory days of 2, 3% economic growth are taken for granted." Are we just in a different world now?
Puzder: No, we're not in a different world. In this country we're in a world that's been dominated by very bad economic policy. In the 70s people were saying the same thing. Then you had the incredible 80s, and right on through the 90s, because Clinton really had no defense spending, lowered capital gains tax. We had this 20-year boom.
Gillespie: Can I take it then we need to cut defense spending?
Puzder: No, what I'm saying is you had the benefit of that in the 90s. I actually think we need to increase defense spending.
Gillespie: Come on, that's a bad stimulus project, don't you think?
Puzder: I don't think we need to increase it as a stimulus project. I think we need to increase it because we're in trouble.
Gillespie: Let's talk about Donald Trump. Are you happy with his performance so far? Give him a grade, and what could he do better, what is he doing right?
Puzder: In the economy I'd give him an A-plus. If you look at the economic data … They had an article in The Hill in June on this, and in the Wall Street Journal in May; from February through June of this year there are 620,000 more Americans working. Last year under President Obama 47,000 more were working. There are almost a million more people, 944,000, that are working full-time jobs. 400,000 fewer are working part-time jobs. That whole increase has been in people working better, full-time jobs. We've seen the jobless claims are now at lows we haven't seen since 1973 when there were 68 million more people in the employable population. Median household income, household net worth, and job openings, are all at historical highs. They've never been this high. In fact in net worth we're 27 trillion over where we were prior to the end of the recession.
Really even just with regulatory rollback, and with business optimism because people believe that President Trump is going to reduce taxes, that he's going to deal with the health care problem, with the health insurance problem, we're seeing real business optimism and growth, people willing to invest. On that part I'd give him an A-plus. He has done what he said he would do on regulatory rollback.
Gillespie: In terms of regulation, this is partly, and what people say about Trump, and his best impulse is, it's harder to get things done than you think. You mentioned regulatory rollback; in his budget, if it was implemented, and this is from Washington University in St. Louis-
Puzder: My, yeah.
Gillespie: Your law school alma mater, they, people at the Weinbaum Center, came out with a study saying it would reduce the number of regulators at various agencies, but it would actually increase spending in the federal government on regulatory activity by 3%, which was something like double the amount of Obama's last year. Is it much more difficult than it seems to actually roll back regulation?
Puzder: The problem is shrinking the bureaucracy, and I think you can see, ever since President Wilson, who really wanted an independent bureaucracy that would kind of run the government independent of elected officials, you've really seen this fourth branch of government that was created, and you've seen Trump have incredible problems with this branch of government, because you've got a bunch of employees from the Obama years-
Gillespie: This is the administrative state.
Puzder: The administrative state. Look, it's killing this, it's strangling this country. We've got a president, I think we've got a president who'd like to clean it out and see it reduced, and he will keep fighting to do that as long as we keep him in office.
Gillespie: Okay, final question. You played in a rock and roll band, who's your favorite rock and roller?
Puzder: I'd say the best guitar player, and my favorite guitar player, was a guy named Phil Keaggy. He's still playing blues, super guitar player.
Gillespie: He's a Christian rock star, isn't he?
Puzder: He is now. When I was a kid, I was going to Kent State, we would have, one night the James Gang would play in the local bar JB's, and the next night it'd be the Glass Harp. One night you had Joe Walsh or Phil Keaggy before them, or Glenn Schwartz before them. Glenn Schwartz ended up in Pacific Gas & Electric. Then you'd have Phil Keaggy the next, two of the best guitar players ever playing in your local bar. Joe's great too, Joe is an incredible personality.
Gillespie: We will leave it there. We've been talking with Andy Puzder. He was a labor secretary nominee and the former CEO of Hardee's and Carl's Jr. Thanks so much for talking to me.
Puzder: My pleasure, thank you.
Gillespie: For Reason, I'm Nick Gillespie.