Low-Income Americans Benefit Most From Strong Economy

COMMENTARY Jobs and Labor

Low-Income Americans Benefit Most From Strong Economy

May 10, 2019 3 min read
COMMENTARY BY

Former Senior Policy Analyst, Grover M. Hermann Center

Adam N. Michel focused on tax policy and the federal budget as a Senior Policy Analyst in the Grover M. Hermann Center.
We have already "seen some narrowing of inequality, measured as wages at the top relative to the bottom," as reported by Obama administration economist Jason Furman. Jung Getty/Getty Images

Key Takeaways

In April, the unemployment rate fell to a 50-year low of 3.6 percent. Businesses continue to add hundreds of thousands of jobs each month.

There are clear upticks in investment, job openings and economic confidence following the election and again after the tax cuts. Pro-growth policies work.

If our representatives in Washington can manage to keep taxes low and address the currently uncontrolled spending, the future can be even brighter.

Consensus is rare in Washington. And yet even Sen. Bernie Sanders recently admitted "the economy is doing well."

In the first quarter of the year, the U.S. economy grew at 3.2 percent, outpacing expectations by almost a full percentage point. In April, the unemployment rate fell to a 50-year low of 3.6 percent. Businesses continue to add hundreds of thousands of jobs each month.

Unfortunately, Sen. Sanders doesn't seem to understand that deregulation, tax reform, and Washington getting out of the way of businesses and individuals is driving the boom. He's still describing the 2017 tax cuts as "Trump's massive tax breaks for billionaires."

Ironically, though, it's the poorest among us people who are historically disenfranchised, individuals with disabilities, and lower-skilled workers who benefit the most from the rising economic tides (and benefited the most from the tax cuts, for that matter).

In April, the unemployment rate for Americans with a high school diploma fell to the lowest rates since before the great recession. Unemployment for workers with disabilities fell from 8 percent to 6.3 percent over the last 12 months, the lowest the rate has been since the measure began in 2008.

Hispanic unemployment is the lowest it has been since 1973 (also when the measure began). Black unemployment remains close to historic lows, climbing slightly since the end of 2018.

When the economy is strong and unemployment rates are consistently low, two things happen. First, job availability pulls workers off the sidelines. People who had previously been so discouraged that they stopped looking for work start getting jobs. As New York Times reporter Ben Casselman notes, more than 70 percent of new hires last month "weren't actively looking for work, but got jobs anyway."

Second, employers raise wages to retain good talent and attract new workers to fill job openings. Until recently, wage growth has lagged behind expectations.

Despite Sanders' acknowledgement of economic news, he refuses "to give Trump any credit." However, the data tell a different story. There are clear upticks in investment, job openings and economic confidence following the election and again after the tax cuts. Pro-growth policies work.

Following the 2017 tax cuts, the growth rate in average hourly earnings began to tick up above the post-recession plateau. Over the past year, average hourly earnings rose by 3.2 percent. That's a raise of roughly $1,400 in a year's take-home pay. Before 2018, wage growth hadn't reached 3 percent since 2009.

The recent wage gains are largest for those who need it most. For the last six months, wage growth for production and nonsupervisory workers outpaced the economy-wide average.

In the past year, wage growth was 6.6 percent for the 10th percentile of workers with the lowest incomes, according to the Annual Report of the Council of Economic Advisers. That's double the 3.3 percent growth rate for workers at the top of the income distribution.

As poorer workers continue to benefit the most from the strong economy, we'll see trends in wage inequality decrease. By one measure, we have already "seen some narrowing of inequality, measured as wages at the top relative to the bottom," as reported by Obama administration economist Jason Furman.

The American people seem to be internalizing all the good news. Job satisfaction and consumer confidence are high. Workers have the highest job satisfaction since 2005, and satisfaction improved faster for lower-income households in the most recent data. Thanks to the strong economy, Americans who aren't happy at their current work are voluntarily leaving their jobs for better opportunities at the highest rate since 2000 when the measure started.

Consumer confidence remains high after surging to an 18-year peak last fall, signaling Americans are confident in the economy. Retirees are also more confident about their retirement security and ability to live comfortably on their savings, reporting the highest retirement confidence numbers since the early 1990s.

But there is still more that Washington can do to ensure the economic expansion continues. The most pressing example is Congress' unwillingness to reduce the growth rate of federal spending, which has driven our debt to dangerous levels that is already dragging down our potential growth.

Without spending controls, large deficits threaten higher taxes on current and future generations.

The powers of good policy are buoying the American economy and American workers. If our representatives in Washington can manage to keep taxes low and address the currently uncontrolled spending, the future can be even brighter.

This piece originally appeared in the Los Angeles Times.

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