Stagnant wages stump economists
The latest report on America’s job market showed that wages are up only 2.5 percent from a year ago. That’s well below the historic average for the country, and it’s about the same rate of increase as the final years of the Obama administration.
Stubbornly low wages help explain why President Trump’s message of American economic “carnage” resonates with his base — and why it’s so important for Trump that his supporters get the raises he promises are coming.
“I believe wages will start going up,” Trump said three times during his Tuesday rally in Arizona, drawing loud applause from the crowd. “We now have the lowest unemployment rate we’ve had in 17 years, so you’re going to see wages go up, right?”
It’s not so simple. Economists are stumped at how unemployment can be so low — 4.3 percent nationally — and so many CEOs complain they can’t get enough good workers, yet wages are barely rising. Some blame robots and overseas outsourcing for keeping wages low. Other says the labor market really isn’t as “tight” as it appears, since many Americans in their prime working years have given up looking for jobs.
Half the jobs in America pay less than $18 an hour, according to Labor Department data. That’s about $37,000 a year if someone works full time. Forty percent of jobs pay less than $15.50, according to the left-leaning Economic Policy Institute. There’s always debate about what constitutes a “good-paying job,” but it’s notable that manufacturing jobs, which President Trump campaigned on bringing back, pay more than $20.50 an hour, on average.
Median household income, a good gauge of middle-class pay, peaked in 1999 under President Bill Clinton, according to census data. In the nearly two decades since then, households have seen their modest gains eaten away by inflation.
“Having a job is not enough to get ahead,” says Kasey Wiedrich, director of applied research at Prosperity Now, a nonprofit that advocates for low-income families. Prosperity Now recently released its annual scorecard, which found that “the data point to a widespread financial fragility in our nation.”
Economist Elise Gould of Economic Policy Institute believes there may be reason to hope higher wages are coming soon. In the past year through July, the biggest jump in wages occurred for the lowest 10 percent of workers. They went from $9.39 to $9.85 an hour, on average, largely because 19 states raised their minimum wages at the start of 2017.
Still, Gould warns, “Although we are finally seeing broad-based wage growth, ordinary workers are just making up lost ground, rather than getting ahead.”
Her research found that the best-paid workers — the top 5 percent — have seen their pay jump 22 percent from 2000 to July 2017. The bottom half haven’t even seen their pay rise 5 percent in that same period.
Trump argues that his recipe of tax reform, harsher restrictions on trade and a rollback of regulations will spur much faster economic growth. That should, in turn, lead to more jobs and higher wages for all. “America’s crushing business tax is a massive, self-inflicted, economic wound,” he said in Arizona, arguing that companies will create more jobs at home if taxes go down.
Critics fear that the Trump tax cuts will end up benefiting only the wealthy. Inequality in America is already back at the levels of the 1920s, largely thanks to the stock market surge. About half of Americans have nothing in the stock market. Democrats argue the federal minimum wage of $7.25 an hour needs to be raised. It hasn’t gone up since 2009. Many also want to see a return of unions and more affordable housing. On top of the tax plan, Trump is also proposing deep cuts to safety net programs, especially Medicaid and food stamps.
Rick Quinn voted for Trump in Michigan on the hope that a billionaire businessman could help little guys like him. In a span of five years, Quinn has fallen out of the middle class. He used to earn $40 an hour with good benefits as an engineer at one of the Big Three auto companies in Detroit. His job was nonunion, and he lost it at 55. He has had a string of jobs since, each one paying a lower wage. Today he earns just $10 an hour as a security guard, a tad above Michigan’s $8.90 minimum wage.
“I’m struggling pretty heavily,” Quinn says. He thinks part of the problem is his age. He’s 59 now with a head of white hair and feels employers won’t give him a chance. “The economy is strong for some people, but not for older men and women.”
Quinn and his wife went from being the people who donate to charity to being the ones who sometimes need aid. The savings he and his wife built up for years are gone. They moved into a smaller house. They drive cars that are so old the heat no longer works in one of them, a problem in the frigid Michigan winters. The hospital hounds them for payments for operations they both needed recently. They don’t go to the doctor anymore. But the worst part by far is no longer being able to help their grandchildren financially, especially the one with spina bifida.
“We are still not at the point where we can make all the payments we need to every month,” Quinn says. They could get by on $20 an hour, but not $10. He hopes that Trump and Congress pass a tax bill soon.
“If these tax cuts take place, I think it will be a big boom,” he predicts.
A Christian, he prays any tax cuts motivate companies to hire older workers, too.
Getting wages up is the unfinished business of this economic recovery. It will be a defining test for President Trump. His two predecessors — George W. Bush and Barack Obama — were not able to lift wages substantially.
“The real measure of success for Trump is what happens to wages,” says Gould.