Tax Reform Is Just the Excuse to Raise Wages

Washington, take note: Corporations’ initial reaction to Congress reforming the tax code may have resolved the biggest labor market mystery of the year. How is it possible to have the lowest unemployment rate in 17 years while still having measures of wage growth stuck around 2 to 3 percent? The answer appears to be that employers were holding on to crisis-era labor market thinking, even in the face of a tight labor market. If tax reform help to change this thinking, 2018 could be a barnburner of a year for workers and wage growth.

For pundits like me who have been expecting faster wage growth in response to a tight labor market for a while, just about all the data has supported our position. Generational lows in the unemployment rate and levels of initial jobless claims. Job opening rates at record highs. Consumer confidence at a 17-year high. Record highs in labor market momentum. Record lows in people mentioning economic issues as a top concern. Employers complaining about labor shortages. Stock prices and corporate earnings at record highs. So what gives?