Tax Cuts Don’t Guarantee Wage Hikes


Mega-retailer Target hiked its entry-level minimum hourly wage to $11 last fall and plans to increase it to $15 by 2020. That action occurred before President Trump signed the GOP tax overhaul into law.

On Jan. 11, Walmart, the nation’s biggest private-sector employer with 1 million workers, announced that it is raising its starting hourly wage to $11 and delivering bonuses up to $1,000 to employees who have worked with the company at least 20 years, due in part to the GOP tax law. The company alleged that its action would help it to attract workers in a tight labor market, a move to which Ken Jacobs of the University of California, Berkeley Center for Labor Research and Education added the force of “public pressure on Walmart over low-wages.”

The tight labor market of a 4.1% unemployment rate for October through December 2017, a 17-year-low, means a falling supply of job seekers. That strengthens their bargaining power with employers, part of the story.

In the meantime, wage growth is anemic in America. “Real average hourly earnings (the actual purchasing power of wages) increased 0.4%, seasonally adjusted, from December 2016 to December 2017,” according to the US Labor Dept.

Against this backdrop, minimum wages will increase in 18 states and about 20 municipalities in 2018, according to the National Employment Law Project. By contrast, the federal minimum wage has been at $7.25 an hour since July 24, 2009.

Will tax cuts for businesses and individuals equate to wage growth in 2018? The Washington, D.C.-based Economic Policy Institute is skeptical that permanently cutting the corporate tax rate from 35% to 21%, effective in 2018 via the new tax law, will have much positive impact on wage growth.

“The real key to boosting wage growth for the vast majority of American workers is restoring economic leverage and bargaining power that workers once had but which have been redistributed from workers to capital owners and corporate managers,” according to Josh Bivens, an EPI economist. “Yet the Trump agenda has consistently pushed policies and rule changes that further weaken workers’ leverage.”

The decline in unions representing workers, from 24% in 1973 to 10.7% in 2016, tells the tale of weak worker strength to raise hourly wages. Workers bargaining individually versus collectively for employer compensation is what bosses want, for all the obvious reasons of for-profit firms.

A symptom of this trend is workers’ declining share of the economy, or gross domestic product. “Across advanced economies, the share of GDP going to labor fell by 9% on average between 1980 and 2007,” write Michael Jacobs and Mariana Mazzucato in Dissent of Spring 2017.

Back to the GOP tax law and workers’ hourly pay in 2018. “I’m sure some of the tax cuts for business will end up in wages, but not most of it,” said Dean Baker, senior economist at the Center for Economic and Policy Research in Washington, DC. “We got a good example a couple of weeks ago.

“AT&T announced that it was giving a $1,000 one-time bonus to 200,000 workers. I looked at their books and it looks like the tax cut should save them around $2 billion annually. The bonus comes to $200 million, or roughly one-tenth the size of the (permanent corporate) tax cut, meaning higher profits indefinitely. The bonus is a one-time gain. I’m not sure that this will directly lead to any special benefits for workers at the minimum wage, although I’m sure some will share in the gains.”

AT&T is also in the process of laying off thousands of employees, according to the Communication Workers of America (CWA) union, which represents AT&T workers. Larry Robbins, the vice president of CWA Local 4900, told the Indianapolis Star that AT&T started privately notifying its workforce of impending layoffs at the same time as it publicly celebrated the benefits of the tax bill. “We believe the $1,000 bonus and the promise of 7,000 new jobs are all a publicity stunt,” Robbins said.

Union leaders have been skeptical of the big companies promising bonuses to their employees in the wake of the tax overhaul. After Southwest Airlines announced its plan to award $1,000 bonuses, the Aircraft Mechanics Fraternal Association (AMFA) told ThinkProgress the gesture isn’t enough to make up for years of workers’ stagnant pay and the company’s unfinished collective bargaining agreement, which is currently under negotiations.

Seth Sandronsky lives and works in Sacramento. He is a journalist and member of the Pacific Media Workers Guild. Email

From The Progressive Populist, Febuary 15, 2018

Blog | Current Issue | Back Issues | Essays | Links

About the Progressive Populist | How to Subscribe | How to Contact Us

Copyright © 2018 The Progressive Populist

PO Box 819, Manchaca TX 78652