Jobs

Weak Wages Only Worsen U.S. Political Volatility

On Labor Day, some Americans can celebrate the long economic expansion. Many more of them won't.

Good jobs in Toledo.

Photographer: Bill Pugliano/Getty Images

Labor Day 2017 might be a cause for celebration. This is the third-longest economic expansion in history -- almost 100 months. Unemployment is approaching a 16-year low, and employers are looking to hire. 

Yet for many working- and middle-class families across America, these good tidings are overshadowed by a sobering reality: Wages and their purchasing power remain flat.

This is a long-term trend, decades in the making. More recently, affluent Americans have recovered beautifully from the Great Recession; most workers have not.

While economists debate the causes and cures, the political implications are profound. These economic struggles and the demise of the centerpiece of the American dream -- that kids will enjoy a more prosperous life than their parents -- played a role in Donald Trump's victory last year.

Most of his support came from reliably Republican voters, and some of it from his appeal to bigotry and the anybody-but-Hillary chorus. What made the difference, on the margins, in the important electoral states of Pennsylvania, Michigan and Wisconsin was an alienation, even despair, among some working-class voters. They used to be Democrats, but last year they became part of the Trump base.

Trump shrewdly pandered to their fears, blaming all the problems on bad trade deals, immigration and Washington elitists. It's instructive to recall that some of the same voters were attracted to Bernie Sanders for different reasons. "Nothing is working" was the reasoning, so why not radical change?

These voters will sour on Trump if he fails to deliver on his promise to increase the number of better-paying jobs. "Nothing Trump is doing will help raise wages more for this base," predicts Alan Krueger, who was chairman of the Council of Economic Advisers under President Barack Obama and is an expert on wage patterns.

Trump seems to have forgotten pledges he made as a candidate, like raising the minimum wage to $10 from $7.25 an hour. He commanded headlines by pressuring Carrier not to transfer better-paying jobs from Indiana to Mexico; less attention was paid to the company's recent announcement laying off hundreds of workers at that American plant.

The president continues to claim that deporting millions of undocumented workers and limiting new immigrants will raise wages for American workers. Many economic studies dispute this; the effect would be that low-paying, unskilled jobs go unfilled. Likewise, while global trade deals have helped some sectors and hurt others, the protectionist measures the administration is espousing won't reverse this and would cause damage.

Last week Trump claimed his sweeping corporate tax cuts will bring a big boost in wages. "Corporate tax reform will boost wages for CEOs," says Lawrence Katz, a Harvard labor economist. "It would have a pretty modest effect on most workers."

One Trump notion, Katz says, would be a big boost: a huge infrastructure program that would create high-paying jobs and longer-term productivity gains. But the White House has put infrastructure on the back burner behind health care and tax cuts.

The wage problem has bedeviled all recent presidents. There are many explanations: globalization and technology; reduced clout of labor unions; lower productivity; the replacement of some older employees by lower-paid younger workers; and insufficient investments in education and development of job skills.

Democrats believe one small help would be to raise the minimum wage, which at $7.25 hasn't gone up in nine years. Conservatives point to studies showing a negative impact on jobs in places like Seattle, which is increasing the level to $15 an hour. Alan Krueger, who has extensively researched the issue, says other studies arrive at different conclusions, and he believes increasing the rate to $12 over four or five years would have net benefits.

Overall, little is likely to happen, and the lethal politics won't go away. The voters' anger last year "reflects the downward pressure on incomes for so many Americans," said Roger Altman, a Wall Street executive and economic adviser to Democrats. He predicts that "unless the weak wage trends of recent years are corrected, which is unlikely, there may be much more election volatility ahead."

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Albert R. Hunt at ahunt1@bloomberg.net

    To contact the editor responsible for this story:
    Katy Roberts at kroberts29@bloomberg.net

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