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Why hasn’t the GOP tax bill supercharged wage growth?

The U.S. jobless rate is the lowest it's been in 17 years and President Trump claimed credit in his address to the NRA, saying the GOP tax cuts are part of the reason. But while companies have reported a very profitable first quarter, wage growth remains sluggish. Has the tax law really translated into the hiring that was promised? William Brangham talks with Jim Tankersley of The New York Times.

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  • John Yang:

    Now, let's dig in a bit on jobs, the economy and whether the new tax cuts are affecting them.

    As we told you earlier, the jobless rate is at its lowest in 17 years.

    And, as William Brangham tells us, the president says it's a result of his policies.

  • William Brangham:

    April marked the 91st consecutive month of job growth. That's seven-plus years in a row, and the longest streak on record for the U.S.

    Average job growth this year is around 200,000 new jobs a month. That's up a bit from last year's average of 182,000.

    And when President Trump was speaking before the NRA today, he said that the tax cuts are part of the reason.

  • President Donald Trump:

    We are seeing the incredible results as a result of our massive tax cuts. And everybody is benefiting. And everybody is happy. We have created 3.2 million jobs. Unthought of. If we would have said that three years ago during the campaign, people would have said, what a horrible exaggeration.

    That's so terrible. They wouldn't have believed it.

  • William Brangham:

    At the same time, companies reported a very profitable first quarter this year. In fact, according to The Wall Street Journal, it was the best in seven years, due in part to pre-tax profits and smaller tax bills.

    But wage growth remains sluggish, and there are questions about whether these profits are leading to the kind of hiring that was also promised as part of the tax law.

    Jim Tankersley covers all this for The New York Times, and he joins me now.

    So, 4 percent, under 4 percent unemployment is a pretty striking milestone, isn't it?

  • Jim Tankersley:

    It's great. There's no question about it. This is a great number. You want the economy to run as hot as you can without getting too much inflation. And we're there right now.

    Maybe we even have more room to run hot, and this is a pretty — I would say unprecedented, like the president, but it's a thing we have not seen since the very beginning of this century.

  • William Brangham:

    Wages, though, have remained a little bit sluggish.

    And my basic understanding of economics is, when unemployment is low and the economy is roaring, there is more competition for that scarce number of workers, wages ought to go up. Why are they not?

  • Jim Tankersley:

    Well, that's a big mystery for economists.

    And there's a few theories. One theory is that there's actually still not as much competition as you might imagine based on the unemployment number because there are about two million people who could be working, but are not looking for jobs right now.

    And that lack of them in the labor force is keeping wages down. Another possible explanation is that workers right now have for so long not had bargaining power with companies. They have not had the ability to demand raises, that they're having a hard time getting it back for whatever reason.

    Companies are just not used to paying them more, and so they're slow to react to, OK, we need to do that.

  • William Brangham:

    So there is the possibility that somewhere down the line wages could start to tick up?

  • Jim Tankersley:

    Absolutely. It's what we would expect from pretty much any way of looking at economic theory, that if it keeps being a very low unemployment rate, if we keep creating jobs at this level, wage growth should, at some point, kick in.

    At some point, you actually exhaust the number of people who are out of the labor force. They should come back in. But until we get there, we might see the subdued wage growth that we have been experiencing.

  • William Brangham:

    The president, as we heard, is crediting the tax bill that was signed and he says this is the reason we're supercharging the economy. And certainly profits have been going up.

    And after the tax cut was passed, we saw a lot of CEOs coming out saying, we're giving bonuses out because of this tax bill.

    In fact, there was one Florida CEO who — I believe it was he stamped Trump tax cut onto the bonus check that he wrote for his employees. Let's take a look at what he had to say.

  • Man:

    I wanted to do it because I'm excited about the new tax plan from Trump and the GOP. And I wanted to share the wealth, as they say.

    And my employees, who are mostly Generation Xers and millennials, not particularly into politics, it really impacted them, when they got in their hands a check for $1,000 that plainly said, this is why you're getting this check, because of the change in the new tax plan.

  • William Brangham:

    I mean, $1,000 is great. Let's not diminish that whatsoever. But a bonus is really not the same as a wage hike.

  • Jim Tankersley:

    It's not.

    And it's also not what anybody thought, including proponents of the law, would be the natural outgrowth of a big tax cut. There's no economic theory that says, when you cut taxes, people get big bonus checks from their employers. It's just a thing that happened that sort of snowballed, in part because companies got wise that the president and Republicans would amplify.

    Oh, look at this great company that is giving out bonuses based on the tax cuts. It was sort of a feedback loop. But that ended after a couple of months. And workers who got that bonus, which, again, is fantastic — and more money in people's pockets is always good — in this case, they're not seeing a sustained, well, next year, I'm going to get a bonus.

    And the wage hikes haven't really followed. But the funny thing about that is, again, is we wouldn't necessarily expect that right away. You wouldn't think companies, unless they have like a union or someone really demanding strongly for them to give wage hikes from a tax cut, you wouldn't expect a company to do it on its own.

    You would expect them instead to invest in better equipment, in more — other capital expenditures that make their company more productive. And then, when their workers get more productive, they have to pay them more because they're producing more.

    And so, in a weird way, it's a bank shot of wage growth that we're looking at. And the bank shot is not appearing in the data yet.

  • William Brangham:

    So, is that investment that they're describing, that if they suddenly get a big windfall from this tax cut, are they plowing it, or does the record reflect that companies are putting that money investment-wise into offices, factories, plants, et cetera?

  • Jim Tankersley:

    There's not great evidence yet that the tax bill has unleashed any sort of an avalanche of investment.

    Investment has been higher under President Trump than it was in the end of President Obama's term. But in the first quarter of the year, investment growth was about the same as it was a year ago. So, on the other hand, we have seen some surge of investment on the large public companies this quarter, and that maybe gives us, plus some other survey data, some hope that we will see an investment surge in the months and year to come.

    But, again, we don't have great evidence yet that that's happened.

  • William Brangham:

    Why is that? Because that was one of the huge selling points of the tax bill, that this will supercharge companies doing this exact kind of investment.

    Why haven't we seen it? Or is it just natural it is going to take this long?

  • Jim Tankersley:

    It could just be natural that it is going to take a while.

    There's plenty of economists who these that things have lags, that in particular the law was more complicated than just a big corporate tax cut, and so it takes time to figure out exactly all the new things and then to figure out where to deploy your resources best in response.

    There's also the fact that there's some instability right now in the economy, from — particularly from trade. And so that might be chilling investment a little bit. And then it's also true that companies have — the first thing that they have done in a lot of cases with this money is to not invest, but to buy back their own stock or to pass money on to shareholders another way, through dividends.

  • William Brangham:

    Explain what that is. We have seen a lot of companies doing the stock buybacks, Apple most recently, very strikingly big buyback.

    For those who don't know exactly what it is, what is a stock buyback and who does it benefit?

  • Jim Tankersley:

    Well, what it is, is a company decides that it is going to repurchase shares of its stock which are out on public markets.

    So it goes out, it spends money to buy its own shares. Now it controls more of its own shares, and that puts money in the hands of people who did own the stock and decide to sell it. And it also increases the value of stock held by existing shareholders, because the price goes up when there's a big demand surge for the stock.

    Now, the hope is that, by conservative economists, is that, eventually, the money that gets into the hands of those investors who sold will find its way into the economy through other investments. They will take that money, and they fund start-ups or they will buy other stock and find a way to seed new companies.

    But, for now, what it does is, in the initial phase, it just turns into a bump for mostly rich people. I mean, the rich in America control most stock. They're the predominant shareholders. And so that is who is benefiting right now. Again, the hope is that it will ping its way through and benefit the whole economy.

  • William Brangham:

    Jim Tankersley of The New York Times, thanks for helping us wade through the weeds.

  • Jim Tankersley:

    My pleasure.

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