Wayne O'Leary

The Wages of Trump

In the midst of one of his periodic fits of euphoria earlier this year, Donald Trump, cheerleader for the Wall Street economy, waxed eloquent about prosperity in America: “Your paychecks are going way up. Your taxes are going way down. And right now, for the first time in a long time — and you’ve seen it — factories are coming back. Everything is coming back!”

The president’s echo-chamber Council of Economic Advisors chimed in with claims that the nation’s households were on the cusp of an historic income breakthrough. Over the coming months and years, members enthused, Mr. and Mrs. Average American would realize an annual family raise of $4,000 to $9,000. Wages would, in a word, “soar.”

To date, those wages are soaring very much the way Icarus of Greek mythology soared, when he flew too close to the sun, melted the wax in his homemade wings, and fell into the sea. Unemployment is down, to be sure, hitting a two-decade low of 3.8% in the most recent tabulation. Republicans, however, didn’t emphasize reducing joblessness, which was already at “full employment” (4.5%) under Obama; they emphasized raising wage rates, which have been stagnant for well over a generation. And here the reality has not matched the rhetoric.

Eighteen months into the era of Trump, US wage growth has barely budged beyond the level of the past 20 years. Factoring in inflation, median weekly earnings are only 3% higher now than it at the millennium. The recovery from the Great Recession has made little difference.

Since 2009, annual wage growth has fluctuated between 2 and 2.5 percent (half the rate for prior recoveries), coming nowhere close to the 3.7% briefly recorded in pre-recession 2007. Amidst the January hoopla in the wake of the GOP tax cuts, the rate of wage growth momentarily approached 2.9%, then fell back and settled in at 2.6% for February, approximately the average for Trump’s time in office (2.5%), which also happens to be about the average for Barack Obama’s final two years.

Nor is there any indication things will soon improve. Despite all the Republican happy talk about corporate money held overseas “coming home” because of the repatriation tax reduction (as though the cash were headed directly for your bank account and mine), tax-cut largesse has yet to reach the American working class. The one-off employee bonuses announced at the first of the year, says The Economist, “did not even rise to the level of a statistical blip.” Bosses, however, are ecstatic about their own prospects under Trump; CEOs of the biggest US companies made 130 times the average worker’s salary in 2017, according to Securities and Exchange Commission filings.

Wall Street’s money gurus, who know whereof they speak, see little evidence of a gathering revolution in American wages. Both Edward Yardeni and John Lynch, chief investment strategists for Yardeni Research and LPL Financial, respectively, informed representatives of the business press in early 2018 they foresaw little likelihood of US companies boosting compensation this year because, as Yardeni put it, “they remain cost-conscious in a tight labor market.” Quizzed by the Federal Reserve about future broad-based wage gains, Coca Cola CEO Troy Taylor responded, “It’s just not going to happen.”

There’s a very real question of whether corporate America even wants to share the wealth, regardless of labor-market “fundamentals.” Analysts at The Economist pointed out in May that the share of gross corporate profits paid to workers in the first quarter of 2018 was only 2% higher than the all-time low recorded in 2014 and well below the average for the previous half-century. The reluctance of corporate management to part with its riches shows up clearly in such instances as a highly publicized hiring fair held recently in New York City, which offered jobs at firms like T.J. Maxx, Marshall’s, and PNC Bank paying $12 to $13 an hour — roughly at or slightly above municipal minimum-wage level.

The Big Apple’s lucky hires, although employed, won’t get rich on those $25,000-a-year jobs unless they hold two or three, which begs the question of where the money is going. Here, most observers are in basic agreement. Researchers for The Economist, comparing the latest decade (2009-17) with an average for the entire 50-year period 1967-2017, discovered its post-tax corporate profits averaged an astounding 31% higher as a share of gross domestic product (GDP), while its investment in plant and equipment was 4% lower and its employee-pay outlay a full 10% lower.

The American Prospect’s Harold Meyerson uncovered much the same phenomenon and gave it a name: American capitalism’s “shareholder über alles ethos.” Citing University of Chicago research, he confirmed The Economist findings. Over the 30 years 1987 to 2017, the share of revenues acquired by US nonfinancial corporations going to profits (that is, to shareholders) rose 13.5%, compared to a decline of 6.7% in that going to labor; investment in R&D and plant expansion, the supposed keys to job creation, also fell, dropping by 7.2%. Maximizing so-called shareholder value, it seemed, had become the be-all and end-all.

This is the corporate mindset Donald Trump supposes will somehow produce soaring wages in response to his grotesque tax and deregulation policies. In truth, he’s just feeding the flames of economic inequality. The fact is, contemporary capitalism, as presently constituted worldwide, just doesn’t work for the majority of employed people.

Last year’s September edition of Finance and Development, the quarterly publication of the International Monetary Fund, traced the decline in labor’s share of overall income throughout the developed world from 1970 to 2015; it’s fallen, the IMF determined, from 55 to 40 percent, especially in the most economically advanced countries (as measured by GDP), including the US. The culprits were technology, global trade’s value chains, and worldwide financial integration; in contemporary America, technology and globalization accounted for fully one-half of labor’s losses.

There are consensus answers to the US wage dilemma, none of them congenial to the Trump administration. They include: reversing de-unionization, strengthening federal labor law, ending or limiting the spread of “contingent” jobs and “noncompete” workplace agreements, raising the federal minimum wage, and making labor markets more competitive through antitrust policies. Something to think about as we head into campaign 2018 and beyond.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, August 1, 2018

Populist.com