Americans have jobs, but they need raises.
Even as the labor market rounds out to full employment, workers aren’t seeing their wages grow. While Congress promises that slashing corporate taxes will deliver this boost, economists are skeptical that the benefit of a deficit-inflating corporate tax cut will benefit rank-and-file workers rather than the investor class.
“The argument that the White House is trying to make is that if we cut corporate taxes we’ll see wages rise,” said Andrew Chamberlain, chief economist at Glassdoor.com. “It’s not a totally crazy argument, in theory, but it’s very uncertain and the evidence is definitely mixed,” he said. “I personally have not seen any good evidence that cutting the corporate tax rate raises wages, at least not in the short run.”
Although the government’s unemployment report released Friday found that the economy added 228,000 jobs last month, more than economists predicted, it also found that wages continue to grow at a mediocre 2.5 percent on an annualized basis, roughly a full percentage point below what experts consider a marker of a thriving labor market.
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Pay growth historically has lagged other indicators of economic improvement, but many economists expected improvements to come by now. “Wages always come at the end, but in this market we would expect it to pick up earlier much earlier given what we know historically,” said Ahu Yildirmaz, vice president and head of the ADP Research Institute, which found that the U.S. economy added 190,000 private sector jobs in November.
Yildirmaz said some of the wage slack could be attributed to waves of retiring Baby Boomers, and some economists say that slack remaining in the labor market is crimping wages.
“It’s really labor market competition that’s going to drive wage growth up,” said Cathy Barrera, chief economist at ZipRecruiter.
Although topline unemployment rates have fallen, Barrera said underemployment remains elevated, and labor market mobility is low. “I think this lack of mobility is an important contributing factor,” she told NBC News.
Unfortunately for workers, labor market experts say rolling back taxes on employers won’t change those dynamics.
Mark Hamrick, Bankrate.com's senior economic analyst, pointed out that globalization weakens the correlation between companies’ available capital and their willingness to hire American workers.
“Corporate leaders do not see a rapid advance in hiring,” he said. “There’s a significant amount of anecdotal evidence pointing to no real change in hiring plans on the part of corporate leaders.”
There's plenty to go around
It’s not that employers aren’t paying people more because they can’t afford to: Companies are already flush with cash. Although this has boosted stock prices, the largesse hasn’t trickled down to workers. “The reality is that with the advent of globalization and acceleration of technology, employers have an increasing number of options to decide upon where to invest,” Hamrick said.
Corporate America’s record profits are a main contributor to the buoyant stock market. Tax cuts are expected to extend that rally, according to UBS, which predicts that corporate profits will rise about 8 percent on the strength of lower taxes and the repatriation of cash held overseas.
“The runup in the stock market today reflects optimism and belief that the tax bill and other things like promised regulatory changes are pro-growth,” Chamberlain said. “There are some investors who believe the tax bill will be very good for them.”
“This bill will be very good for corporate profits. The stock market is anticipating a big windfall,” said Harry Holzer, a professor of public policy at Georgetown University.
But Holzer said there’s no clear sign that companies plan to invest this money either by growing headcount, or adding and improving equipment that would make their existing workforce more productive.
“We don’t really know why companies are spending so little on investment, given that they have so much money sloshing around already,” he said, expressing doubt at the assertion that corporations would behave differently if they had even more money. “American companies have learned how to be very profitable without investing a lot in their equipment or their workers,” he said.