Wages are finally getting back to pre-crisis levels

OVER the eight years of the Obama presidency, the stock market climbed, corporate profits climbed and the economy grew. But for most of those eight years, wages were stagnant.

That’s finally changing. We’ve hit full employment, and working Americans are finally seeing their wages increase.

Median household income hit $61,400 last year, according to Census Bureau figures announced last week. That’s the highest level ever. Put another way, wages have finally gotten back to (and just beyond) where they were before the financial crisis.

The backstory is this: Although the stock market and the gross domestic product returned to their precrisis highs by early 2013, wages still lagged. The average worker in the United States was making less in 2016 than in 2007. The recovery of wages didn’t even begin until 2014, and it didn’t match the two previous peaks (2007 and 1999) until 2017.

The wage recovery didn’t begin under President Trump, but his policies have helped, even if the administration can’t explain why. Treasury Secretary Steve Mnuchin in January gave a dreadful defense of Republican tax cuts: “The whole purpose of the tax cut act was to put more money in companies so they could compete competitively with international companies.”

This explanation was noteworthy because it reflected Obamanomics more than it reflected conservative economics. George W. Bush and Barack Obama in 2008 and 2009 tried to juice the economy with bailouts and stimulus bills that “put more money in companies,” as Mnuchin would put it, in the hope it would trickle down to workers and increase wages. Bush and Obama’s policies helped cushion corporations, but “putting money in companies” doesn’t lead to wage growth.

Wage growth happens the same way other price increases happen: increased demand for a given supply. Giving companies money doesn’t increase demand for labor, because companies don’t hire people for the sake of hiring people. Companies hire people to do work that needs doing. And companies only perceive a need to do more work if they think the chance of more profit is sufficiently promising.

That’s the real reason the Republican tax cuts have stimulated wages: Lower corporate taxes and lower small-business taxes create a playing field where more undertakings are worthwhile. Companies are finding profitable activities to invest and engage in, and spending less time and money avoiding the old high tax rate and squeezing the old loophole-riddled tax code for extra cash. More people will start small businesses (business applications were up 13 percent in Trump’s first five quarters, twice the prior rate), and existing businesses will expand more. Business expansion means expanded demand for labor. Thus, we get unemployment approaching its floor and wages climbing as the supply of labor cannot meet demand.

It’s easy for folks who watch the economy to look at the headline numbers of GDP and the stock market. But for real people, wages are what matter. Those are still climbing, and climbing to record levels. That’s real economic success.