Job numbers distract from ongoing labor market problems

This first appeared on RealClearPolicy on JANUARY 31, 2018.


President Trump used his State of the Union address to highlight America’s positive economic outlook. He drew particular attention to jobs, claiming to have fulfilled a core campaign promise on employment. And it’s true that the U.S. economy added over 2 million jobs in 2017 — surpassing many economists’ expectations. Indeed, there was widespread concern after the presidential election that recession was looming. That slowdown never materialized; instead the economy grew by over 2 percent last year.

It is natural for the White House to take credit for these positive indicators. Trump’s critics, meanwhile, point out that the U.S. economy added fewer jobs in 2017 than during the Obama’s final years and that unemployment rates have been falling steadily since 2011. But partisan quibbles over the job numbers ignore deeper problems. In spite of a five-year trend in job creation, there are worrisome trends in the U.S. labor market that Trump’s policies fail to address. 

The most important issue is that wages remain stagnant. Although the president touted recent wage gains during his speech, average earners still have not fully recovered from the Great Recession. Wage growth was approximately 2.5 percent in 2017. While that looks positive, it’s roughly half the annual increases workers enjoyed prior to 2008. As a result, wages continue to lag behind productivity growth.

The story is even less encouraging when looking at working-class employees. There was a small spike in manufacturing wages last fall. However, the bottom 50 percent of American earners have seen no appreciable increase in their standards of living. Low-income earners make less in real terms today than they did a decade ago. At the same time, recent research shows that increases in household incomes are a mirage. Incomes are not rising as a result of improving wages. Instead, Americans are simply having to work longer hours to keep up with regular expenses.

Trump’s solution to these problems? Slashing regulations at home and increasing trade barriers abroad.

Trump has positioned himself as a deregulator. He attributes recent economic success to shredding a litany of Obama-era rules relating to energy, land use and, most importantly, labor. But deregulation is not what the U.S. labor market needs, particularly at a time when so many Americans are shifting into the gig economy. 

The last few years have seen an explosion in freelance and short-term contract work. Some observers applaud the changing structure of the labor market. Labor, especially younger workers, supposedly wants more flexible hours, greater independence, and the ability to change jobs and careers. But there’s also strong evidence that these workers earn less money, have less job security, and receive more modest benefits

Yet, Trump continues to pursue regulatory cuts that will directly harm individual incomes. Take health care for instance, one of Trump’s main preoccupations. His efforts to repeal the Affordable Care Act have already worried some observers, as millions of self-employed and freelancing Americans could be left without insurance if Obamacare is dismantled. 

This may not seem like a pressing issue now, but all estimates point in the same direction: The gig economy is only going to grow larger in the next several years. Predictions are that by 2020 as much as 43 percent of the American workforce will rely on the gig economy as their principal source of income. 

While Trump slashes regulations at home, he continues to jeopardize key trade relationships abroad. Trump followed up his investor-friendly speech at Davos by immediately criticizing Europe for its alleged abuses. 

America’s trade partners are growing impatient. Europe recently signed a new dealwith Canada and announced progress in negotiations with Mercusor — the agreement that joins together South America’s leading economies. 

Trump’s stance on trade matters for American jobs. The administration’s recent announcement of new tariffs on solar panels was just the latest on a growing list of protectionist policies derided by economists and industry insiders alike. Here again the concern is that Trump’s policies will inadvertently cost the U.S. jobs. One leading industry organization estimates that tens of thousands of solar jobs could be at stake. The tariffs could also cause sharp downturns in new purchases in an industry where the vast majority of its roughly 260,000 employees work in installation and other support jobs. 

Taken together, Trump’s two-pronged approach of deregulating the market and severing trade ties is not a recipe for additional job growth. Nor will it help grow the incomes of America’s workforce.

In the mean time, Trump will bask in the glow of positive economic indicators while he can. And if stock indices are anything to go by, business is certainly booming. But average Americans’ paychecks signal something else: The good news on Wall Street is not trickling down to Main Street.