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WASHINGTON – One of the mysteries of the current economic recovery is why wages remain neutral as economic growth accelerates. On Wednesday, the Trump administration attempted to solve the problem by producing its own measure that shows that wages are actually increasing.
The same measure, however, showed that wage growth slowed under President Trump, compared to the end of the Obama administration.
The most recent data from the Federal Bureau of Labor Statistics show that, corrected for inflation, the average weekly earnings of American workers has only increased by 0.1% over the last year. These data also show that average hourly earnings, adjusted for inflation, decreased by 0.2% over the year. Both figures are based on a measure of inflation known as the Consumer Price Index.
A 32-page report released Wednesday by the Council of Economic Advisers of the White House states that the real growth in worker compensation adjusted for inflation has reached at least 1% over the past year and has reached 1%. , 4%. in their paychecks tax cuts.
The report comes as Democrats have intensified their criticism of sluggish wage growth in a time of low unemployment and accelerating economic growth. The publication highlights the challenge that government officials faced in selling the benefits of the $ 1.5 trillion tax cut that Trump signed last year.
According to the administration officials, the growth in the additional compensation found in the report comes from the use of a different inflation measure, the index of personal consumption expenditure , which is also used by the Federal Reserve in its calculations; to include the increase in non-salary benefits such as health care coverage and paid leave; and adapt to the effect of younger and lower paid workers entering the labor market. Economists such as Mary C. Daly, of the Federal Reserve Bank of San Francisco, weaken the growth of average wages in the economy.
"Much of the commentary on wage growth we see is influenced by the confusion we find about the appropriate measure," Kevin Hassett, chairman of the Council of Economic Advisers said on Wednesday. "The headlines have missed real wage growth."
Mr. Hassett also acknowledged that, according to the board's preferred measure, compensation growth had not increased under Trump, despite a drop in the unemployment rate, which had fallen below 4% for the first time since 2000.
Periods of low unemployment are usually associated with rapid wage growth as firms are forced to compete for higher wage offers. While wages showed modest growth in some occupations such as construction, they did not experience the type of outbreak that would typically accompany such a strong recovery. Fed officials continued to monitor the phenomenon, but said they expected wage growth to accelerate.
On Wednesday, the Council of Economic Advisors posted data on Twitter showing an increase in pre-tax pay – adjusted according to the government's preferred method – nearly 3% in 2015 and 2% in 2016, the last two years of the second mandate of President Barack Obama. It slowed to about 1.5% at the end of 2017 and slowed again in 2018, despite the adoption of tax cuts. The board said it expects these numbers to increase "as the benefits of tax reform are fully realized."
Republicans have focused their speech on tax cuts not only on the promise of individual rate cuts giving more money to American families, but also on corporate rate cuts that have resulted in rapid wage growth for businesses. workers. A The report released by the board last fall provided that the reduction in corporate tax alone would increase the wages of an average US household from $ 3,000 to $ 7,000 a year.
Critics of the tax bill said on Wednesday that the new White House report confirming the promised benefits had not been released yet. "There has probably been no significant effect of tax legislation on pre-tax pay rates up to now," said Greg Leiserson, former senior board economist who is now director Tax Policy at the Washington Center for Equitable Growth. tank. "This is not a surprise, but it's a problem for promoters who have exaggerated the cause of the legislation."
Hassett said Wednesday that wage gains from corporate cuts, boosted by increased investment that would lead to faster productivity growth and higher worker wages, would take "three to five years" to come. He also said that recent investment data suggested that these gains were "on the right track".
"We expect wages – as people get their annual increases and the capital stock goes online – to speed up from here," Hassett said. "But it's something we'll have to wait and see what the data indicates in the second half of the year."
Studies published this week by Fed economists have shown that it is difficult to say how much additional investment has been generated by tax cuts, which has reduced the corporate rate and allowed companies to
Until now, economists have written that "tax cuts" have been associated with a dramatic increase in share buybacks; evidence of an increase in investment is less clear at this stage because it is probably too early to detect, since the effects may take time to materialize.
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