Here is some good news for workers that most investors already knew. The Commerce Department has announced that corporate profits are way up. Thanks to tax cuts and deregulation, the economic sun is shining on the United States. Firms will make hay by increasing investment and expanding production, which bodes well for workers.
When profits are up and expected to keep improving, firms want to hire more workers to take advantage of opportunities to make profits. Indeed, the jobs story fits this narrative. Since the election in 2016, stock prices as measured by the Dow Jones Industrial Average are up nearly 50 percent, and employment is up as well. Recent jobs reports from the Bureau of Labor Statistics show unemployment rates consistent with full employment. The data also show record and near record low unemployment rates for African Americans and Hispanics.
Sometimes workers get discouraged and leave the labor market. This can make the numbers look artificially good since unemployment is measured as the ratio of those out of work and looking for a job compared to those still in the labor force. But the labor force participation rate has also been rising, indicating that better job prospects are bringing discouraged workers back into the labor market. Falling unemployment and rising labor force participation is a twofold blessing.
Increasing demand for workers should eventually translate into higher pay. Over the long run when benefits are added to wages, total compensation matches increases in productivity. This is why it is concerning that recent growth in average wages has been struggling to keep ahead of inflation. However, in a twist on previous experience, wage growth has been faster than average in certain lower wage industries.
But workers can take heart as it is almost certainly too early to see the full wage impacts of a tax cut that started only this year. A Heritage Foundation study projects that over the next decade, an average family of four will take home an additional $45,000 from the combined impact of their own tax cuts and from income growth the tax cuts generate. Whether they read that study or not, consumers seem to think things are getting better. According to the most recent Conference Board survey, consumer confidence is higher than it has been since 2000.
However, there are some flies in ointment. One particularly disturbing problems is the impact of drug use on the workforce and productivity. A recent survey of employers found that seven out of 10 blamed problems with absenteeism, reduced productivity, and safety issues at least in part on opioid abuse. Drug abuse will not be cured with tax policy or job training programs and is likely to be a persistent drag on employment.
Perhaps even more worrisome is the rising popularity of socialism. A recent Gallup poll found that 51 percent of those ages 18 to 29 have a positive view of socialism, while 45 percent of the same group have a positive view of capitalism. Among Democrats, 57 percent have a positive view of socialism, compared with 47 percent for capitalism. If a goal of those supporting socialism is to end poverty, they should look at history.
Measures of economic freedom are strongly linked to higher performing economies. Countries that expand the pie lift more people out of poverty than those that simply try to slice it differently. The favorite socialist examples of Sweden and Denmark will not really do. Market nations score more favorably on Heritage Foundation index of economic freedom.
In spite of these problems, America has emerged once again as the premier place to invest and grow. It is a testimony to the fundamentals that make it a great country for its workers. Profits are up, the stock market is up, employment is up, labor force participation is up, lower wage workers are seeing some wage gains, and consumers are feeling confident. This is an overwhelmingly good story for our economy. It is a story of what American workers and producers can do when unleashed from high taxes and unnecessarily burdensome regulations.
This piece originally appeared in The Hill on 9/3/18