Trump’s rotten economic plan is doing nothing for wage growth – or workers

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Trump’s rotten economic plan is doing nothing for wage growth – or workers

Analysis


President Trump’s economic policies are doing nothing for wage growth. Photo: Reuters
President Trump’s economic policies are doing nothing for wage growth. Photo: Reuters

Jason Furman, chairman of the White House Council of Economic Advisers under former US president Barack Obama, wrote last month: “To explain the wage puzzle, we first need to define it. The central question is: why are we not seeing the pace of wage growth we saw in the late 1990s? Specifically, why is the 3.4 percentage point wage growth in hourly earnings for prime-age wage and salary workers over the past three years lower than the 4.8 percentage point increase in wage growth for the same group in what I will call ‘the late 1990s’?”

Like most respected economists, Furman finds the root of slow wage growth is slowing productivity. “Productivity growth has slowed dramatically in recent years in the US and almost all other advanced economies as well. Productivity growth was spectacular in the late 1990s, rising at 3pc annually,” he writes. “It has been dismal in recent years, rising at only a 0.7pc annual rate. That’s part of the explanation for slow wage growth: based on the productivity numbers alone, one would predict that average wages would be growing about 2.3pc more slowly than they did in the late 1990s.”

Republicans talk only about tax cuts, which have very little to do with wage growth. They favour deregulation – but often deregulation that benefits the already rich and well-to-do. Furman recommends gradually raising interest rates and making sure those at the lower end and on the middle of the economic ladder benefit “without harming productivity very much and in some cases even helping it”.

“We should increase competition through more vigorous antitrust enforcement, by strengthening workers’ bargaining powers, and by reducing the ability of companies to use measures like no-poaching contracts to get leverage over their employees. There is still a lot of room for workers to get the type of larger share of the economic pie that they did in the past.

“Greater productivity growth holds the potential of being the most powerful source of sustained wage growth across the income spectrum, but we likely do not have policy tools that will quickly and sustainably increase growth. I’d take a chance on every tool we have (provided it does not have negative side effects). That means investing more in infrastructure, research, and education, along with a genuine tax reform. We can improve economic efficiency while making revenue levels more sustainable by raising top individual and corporate tax rates and improving the tax base.” That is a sensible economic plan that those on the centre-left and on the centre-right should embrace.

In a subsequent conversation with the American Enterprise Institute’s James Pethokoukis, Furman explained some constructive measures that could fuel wage growth.

“Housing and land-use regulation. I think there is a lot of evidence that where people are matters for productivity and having conglomerations of people in the most productive areas is great for the economy. And right now a lot of people can’t afford to live in those areas so I do think knocking down those land-use regulations would help. And the other one is occupational licensing which prevents a lot of people from moving between occupations and from moving across state lines. Non-compete agreements, I would throw that in as well.”

That’s music to the ears of many on the right and left who have been complaining about the “captured economy”. (“Rules made to benefit not the public good, but big firms or rich people, have led to money and wealth being distributed from the poor to the rich and the small to the big.”) This is not about big or small government – big government is here to stay. It’s about good government that doesn’t perpetuate or exaggerate the advantages of those at the top.

In short, President Donald Trump’s brand of crony capitalism, protectionism and immigration exclusion makes for rotten economic policy, worsens inequality and does nothing for wage growth.

There is plenty that can be done, if thoughtful people on the right and left can agree on a set of policies that help level the playing field to improve opportunity while spending in ways that will improve workers’ productivity.

Unfortunately, whether it is tariffs or tax cuts or pushing dying industries, this administration embodies the worst of the “captured economy”. Dumping Trump and Trumpism could clear the way for some bipartisan, constructive economic policy. That’s the hope, at any rate.

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