OPINION:
Throughout the economic recovery, wages have grown slowly and adjusted for inflation, have been nearly stagnant. This has frustrated both Presidents Obama and Trump, but gains in real compensation should accelerate if we stay with the Trump economic program and impose more transparency about what employers pay workers.
Most fundamentally, pay adjusted for inflation can’t rise faster than labor productivity, because human resources are the largest component of business costs. Runaway wages would merely instigate large increases in the prices that workers would then pay for goods. That’s why the Federal Reserve watches wages so closely as unemployment falls and is raising interest rates.
Since 2009, labor productivity has advanced 1.1 percent annually. That is significantly less than prior economic expansions going back to 1960.
Higher corporate taxes in the United States than abroad discouraged investments in business assets like factory equipment, computers and software but also in worker training. Aggressive banking, environmental and diversity regulations that Mr. Obama imposed came with high compliance costs and slowed down businesses. States and cities have actually forced down labor productivity — negative productivity growth — in home construction with more aggressive building codes.
Job losses from artificial intelligence and robotics are not new. Those are merely extensions of the efficiencies gained through mechanization, electricity and computerization that began in the 19th century.
As innovations displace workers, those can create big leaps in productivity and more rapid economic growth if workers are trained for the new jobs that emerge. However, the majority of money spent on secondary education is on college preparation and at colleges and universities on liberal arts or general education of some kind. Those priorities have not given us adequate numbers of technologists. Everyone from the engineers to maintenance technicians needed to run modern factories and offices.
In addition, workers during both the Obama-Trump recovery have received less than half of the gains in labor productivity in the form of higher compensation. They simply got a bigger share of productivity gains during prior recoveries dating back to the 1960s.
Globalization has made it difficult for workers to bargain for wage gains — even those that don’t make goods that compete with imports. If an appliance factory in a moderate-sized city can’t raise wages because of imports from China and South Korea — and especially if those products benefit from government subsidies and artificially depressed currency values — dry cleaners, restaurants and so forth are under much less pressure to raise wages, too.
Liberals blame the decline of unions but the shift away from factory work and other standardized manual occupations to office work — where employees vary more in their job classifications and tasks — makes collective bargaining for pay more difficult. Some college professors have unions but pay disparities among faculty with similar records are legend. Those hired most recently simply earn more than those who have been around five or more years.
Data compiled by the Atlanta Federal Reserve Bank show that workers who switch jobs accomplish larger wages gains than those that don’t. However, since the financial crisis, employees are more inclined to hold on to secure positions and avoid buying and selling homes to move between cities to take better paying jobs.
Requiring businesses to make available information about the salaries of all employees across broad job classifications or salary ranges would help encourage greater equity in pay among and between men and women.
More broadly though, the Trump tax cuts are having traction and should start showing up in paychecks soon — if the Fed does not smother the recovery by raising interest rates too much.
When businesses were recently asked where they were putting their corporate tax-cut savings, 49 percent said increasing capital investment and 34 percent said increasing employee training, whereas only 32 percent and 17 percent, respectively, said increasing dividends to shareholders or stock buybacks.
We are starting to see evidence that along with deregulation those priorities are boosting productivity growth. And efforts to open foreign markets and contain competition from subsidized imports should help offset downward pressure on wages from globalization.
Similarly, Mr. Trump’s emphasis on apprenticeships for high school graduates across a broad range of white- and blue-collar occupations should alleviate skill shortages.
If coupled with greater transparency about what employees are paid, those could rebalance the economic equation even more decidedly in the favor of workers again.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.
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