The effort to persuade working-class Americans that they’re doing just fine in today’s economy despite the evidence of their own wallets and purses has turned into quite the cottage industry among right-wing think tanks.
This week the Trump White House joined the party. In a paper issued Wednesday, its Council of Economic Advisors offered several tweaks to how wage changes customarily are measured, aiming to show that on an inflation-adjusted basis, wages grew by 1.4% over the last year, “well above the near-zero real wage change suggested by headline measures.”
The political subtext of the paper should be obvious: It’s to dress up the record of the Trump administration, especially by putting in a word for the tax cuts enacted by Republicans in December, which can “increase the economic value of work for employees in a way that is not reflected in the usual measures,” according to the authors. Wages for the working class haven’t stagnated under Trump, in other words; they’ve grown.
But is that so?
Readers should recognize the paper as an episode in a long-running Republican project to make the working class look like it has benefited from GOP economic policies more than the rank-and-file, sorely misled as it is, recognize.
Even amidst strong macroeconomic results and a tight labor market, real wage growth for middle-wage workers has been weak over the past two years.
Some corollaries of this argument that we’ve seen in recent years are that Social Security is more generous than it needs to be, that the “retirement crisis” is a myth because the elderly are raking in the bucks without telling anyone, and that the 1% are the real victims of the modern economy. We’ve addressed some of these claims before, including here, here and here.
The latest claim shouldn’t have any more credibility than those do. The Bureau of Labor Statistics reported Friday that hourly wages increased 2.9% for all private nonfarm employees and 2.8% for production and nonsupervisory employees in August, over the previous year. Since inflation was reported at 2.9% for the year as of July, that makes August another month of no gain or even backwards motion.
The package already is getting picked apart by progressive economists including Jared Bernstein (former chief economist to Vice President Joe Biden) and Larry Mishel of the pro-labor Economic Policy Institute; they summed up the White House paper with the phrase, “thumb on the scale.” Separately, former Obama administration chief economist Jason Furman deconstructed the paper in a lengthy Twitter feed.
Some of the “adjustments” proposed by the Trump teams aren’t entirely novel, and others are so transparent you don’t need to be a progressive economist to spot the sleight of hand. Let’s take a look.
One tweak involves inflation adjustment. The Bureau of Labor Statistics, the government’s wage tracker, uses the Consumer Price Index for Urban Consumers, or CPI-U, for near-term changes and a CPI variant for longer-term measurements. The White House proposes substituting something called the Personal Consumption Expenditure Price Index, or PCE, which it says is “preferred by many economists, including those at the Federal Reserve.” It claims the PCE is more “accurate.”
But as we’ve explained in the past, this is grossly misleading. The truth is that CPI and PCE measure different aspects of the economy: The PCE helps the Fed track inflation in the overall economy, because it incorporates spending by government agencies and employers on things like healthcare; but it doesn’t focus on price changes experienced by the person on the street, such as the premiums and deductibles he or she pays for. For that, even Fed economists have agreed, the CPI is better. And if you’re tracking wage growth — meaning changes in the average person’s buying power — you’re tracking out-of-pocket spending.
The real reason the White House prefers the PCE should be obvious: It consistently generates a lower figure for inflation than the CPI, which means wages adjusted by the PCE will seem to grow faster.
The White House also proposes to adjust wage statistics to include fringe benefits, which are left out of the usual monthly and annual wage growth reports. That’s true, but as Bernstein and Mishel observe, “adding fringes doesn’t change the underlying trends.”
That’s obvious even from the White House paper, though it tries to suggest robust growth in fringes by messing with its graph formatting. In any case, the average worker can hardly be fooled: Raise your hand if your employer has lowered your health plan premiums, deductibles or co-pays in recent years, or increased its contributions to your 401(k). Anyone? Anyone? Bueller?
Moreover, as Bernstein and Mishel point out, fringe benefits are distributed unevenly across the workforce: “Only 23% of workers in the bottom quartile participate in health plans and 25% participate in retirement plans,” according to the BLS. “For those in the second quartile (25th-to-50th percentile range), about half participate.” In other words, for millions of Americans, especially those at the low end of the income scale, there are no fringe benefits to adjust.
The White House also pushes for a demographic adjustment — the paper asserts that “because those entering the workforce for the first time or after a period of not working … often have lower wages,” and older workers earning higher pay are retiring, the overall statistics make wage growth look lower than it really is.
But Adam Ozimek of Moody’s confronted the latter notion head-on only a week or so ago, and concluded it’s bogus. There are more older workers in the workforce than ever, and in any case they don’t generally collect the highest wages. Furman and Bernstein and Mishel point to the Atlanta Federal Reserve’s wage tracker, which compensates for the demographic effect; it shows that growth in nominal (non-inflation adjusted) wages has been flat on average since 2016.
The final claim worth examining is that the tax cuts have triggered wage gains. “During the past year,” the White House says, “over 6 million workers have benefitted from the tax cuts in the form of pay raises, better benefits, and bigger bonuses.”
Whether workers are getting pay raises is the question needing to be proven, not asserted; we’ve already dealt with “better benefits”; and as for “bigger bonuses,” this appears to be a reference to the one-time gifts of a few hundred or a thousand dollars doled out by companies raking in millions from the tax cuts. A couple of points: Since the tax cuts were only enacted in December, it’s a bit odd to claim they’ve been in effect for a full year.
Also, 6 million workers constitutes a less than princely 3.7% of the 162.2 million U.S. civilian workers, even if the claim is that all 6 million got bonuses, raises, and better benefits, a dubious proposition. The Trump administration would love to claim that the tax cuts have increased all workers’ take-home pay, but obviously that effect is much more pronounced at the top of the income ladder, where most of the cuts were concentrated.
If the White House is hanging its argument on these sorts of calculations, it must really be desperate to paint a fictional picture. When someone’s argument is that “things would look better if only you used different math,” beware.