President Donald Trump promised Americans a $4,000 pay hike when he passed his tax cuts last December. Yet eight months later wage growth has been stagnant despite record low levels of unemployment.
Friday's jobs report showed unemployment at 3.9 percent, an 18-year low. But even with historic lows, workers' pay has only increased by 2.7 percent since last year. With inflation hovering around 2 percent, that's an adjusted 0.7 percent growth in earnings. A wage earner would have to bring in more than $570,000 to see that promised $4,000 increase in pay. Instead, the average worker is seeing a weekly pay raise of just $16.42.
"This jobs report provides the latest evidence that the Republican tax law has done little to raise real wages in this country," said Senator Martin Heinrich, ranking member of the Joint Economic Committee, in a statement.
Democratic National Committee Chair Tom Perez was also critical of the tax plan. "Corporations have used their tax windfalls to line the pockets of their rich executives, not to increase wages for their workers," he wrote in a statement. "Meanwhile, workers at places like Harley-Davidson are losing their jobs."
But even without the promised growth of the tax cuts, basic economic wisdom says that when unemployment is low and the labor market is tight, the shortage of available workers should lead to an increase in pay. Given current conditions, economists estimate wage growth should clock in at around 3.5 percent, which is what they consider the threshold for a healthy economy.
Top economic minds are baffled by the lack of growth. "There is still a bit of a puzzle in that we're hearing about labor shortages now all over the country in many, many different occupations in different geographies," said Federal Reserve Chair Jerome Powell in a Marketplace interview. "And one would have expected, I would have expected, that wages would move up a little bit more."
Some worry that small paychecks are a result of technological innovations that increase productivity without the help of labor. "If wages are stagnating, that means that we're doing all these great technological innovations, but most people really don't see the benefit of that," Dean Baker, co-director of the Center for Economic and Policy Research, told NPR.
Still, Trump continues to promise higher wages. Last week, he called the United States "the economic envy of the entire world," and took to Twitter to talk about pay rate growth.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Nicole Goodkind is a political reporter with a focus on Congress. She previously worked as a reporter for Yahoo Finance, ... Read more
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