In search of good jobs
The prospect of good jobs at good pay has faded of late, and the government is only threatening to make things worse. Cutting taxes on the wealthy, especially by rescinding health insurance for millions, and deregulating Wall Street — the centerpieces of the Trump agenda — help those who need no help while depriving the government of resources that could help create well-paying jobs and bolster people’s incomes. Such trickle-down economics encourages business policies that make the workforce less secure.
At the same time, the Federal Reserve, apparently concluding that the economy is at or near “full employment,” appears ready to cool it down with still higher interest rates. The thought is that the jobless rate, 4.3 percent, cannot go any lower without causing excessive inflation — even though economic growth has been modest, job growth has slowed in recent months and inflation remains below the Fed’s 2 percent target.
The upshot is that both fiscal and monetary policy are moving in ways to inhibit wage growth when it is desperately needed.
Last year, the median hourly wage rose 3.1 percent as employers steadily added jobs throughout the economy. In recent months, though, as job growth has slowed, wage growth has fallen to an annual rate of about 2.5 percent. If wage gains reflected decadeslong gains in labor productivity — the measure of the economic growth created by workers — an American making around $40,000 today would instead be making about $60,000.
A labor market in which wage growth is slowing still has room to grow, because when job conditions are truly tight, wages rise as employers compete for workers. A rate increase would continue to prop up stock prices but would hurt workers. Such an outcome would be impossible to square with the Fed’s mandate to promote full employment and stable prices.
To raise wages, the government could raise the federal minimum wage (last increased in 2009) and modernize overtime pay rules for salaried workers (last updated fully in 1975). At the least, any tax cut should be focused on low- and moderatewage earners by vastly increasing the earned-income tax credit, at far less cost than Trump’s proposed high-end tax cut. If a family of four making $40,000 received a credit of $6,000 rather than $2,000, as under current law, the extra income would go a long way to repairing the damage from prolonged stretches in which wage earners have lost out while executives and investors have triumphed.
The White House and Congress show no sign of altering the path they are on, but the Fed has generally shown flexibility in the face of changing conditions. Pay raises for American workers depend on Republican leaders’ changing their ways and on the Fed’s reverting to form.