In Tonight's GOP Debate, Watch Out For The Wage/Growth Paradox
Tonight the GOP hosts its fourth debate for the 2016 primary, this time with fewer candidates taking the stage at Wisconsin’s Milwaukee Theater. Hosted by Fox Business this debate will focus on the same themes as CNBC’s highly controversial October outing: taxes, employment and the economy.
Among the many issues that will come up this week, viewers should pay special attention to what the candidates have to say on the wage/growth paradox.
It’s perhaps the single greatest puzzle in the modern economy.
For several years, job growth has remained strong as the economy recovers from the depths of the Great Recession. Last month alone the Bureau of Labor Statistics reported 271,000 new jobs, considerably exceeding expectations and continuing strong headwinds as the country heads into the holiday season.
Even allowing that October’s numbers surged, employment has stayed strong and beaten concerns of a return to sluggish growth after August and September’s market scares.
This isn’t news. The unemployment rate has slid almost continuously since its peak at 10.1% in mid-2009. After October’s report, it sits at 5.0%, the lowest since mid-2008. Economists generally consider anything less than 5.2 to 5.5% “full” employment, and even in the '90s it never dipped below 4%.
Of course, some degree of unemployment is a good thing, as it represents those people in transit between one job and the next.
So this should be good news… except that wage growth remains just barely above inflation. You see, while Americans have more jobs, they don’t seem to be getting any richer. According to data gathered by the left-leaning Economics Policy Institute, from 2010 until 2014 (the same period during which employment soared), wages across almost all earners actually declined.
This, to put it mildly, shouldn’t be happening. Although the market for labor doesn’t quite follow the rules of a commodity like corn or soybeans, to a very large extent, labor still obeys the rules of supply and demand: the less you have of something, such as available workers, the more it should cost to buy.
Historically, for this reason, wages have followed recoveries.
Yet here we are, with the fewest workers available for hire since the mid-aughts, and somehow almost no one is making any more money than they used to. Data out of the Federal Reserve Bank of Atlanta indicate that many people today have actually lost purchasing power compared to pre-Recession earnings.
It’s as though the country faced a nationwide run on crab without impacting the cost of a California roll.
This, in a nutshell, is the wage/growth paradox. How can employees be getting scarcer without becoming any more valuable?
Unsurprisingly for a long-term problem, observers of every stripe have a theory. Plenty of politicians have spitballed their own solutions, but the ones talking the loudest often have the least to say. On the left Bernie Sanders has thumped his podium against inequality, a valuable bumper sticker position if there ever was one. The truly vast gulf between the rich and the rest of us is starting to have very real effects on the economy.
But policy doesn’t get written on a bumper sticker, as Sanders’s colleagues across the aisle know all too well, and if anything, inequality is an effect rather than a cause, made possible by the fact that employers can still pay less and keep a larger share of profits. As an actual explanation, it leaves much on the table.
The Republican camp has struggled with this issue as well, although asymmetrically. Where Democrats have struggled to come up with workable solutions that don’t rely on brute-force methods such as high minimum wage laws, Republicans have only recently even begun treating the issue as even worthy of mention.
Most Conservative employment plans focus on job creators, a term that the GOP itself coined to justify increasingly lavish policy giveaways to wealthy patrons. As inequality has taken root as a cultural and political issue over this past year, candidates have tepidly began to acknowledge that perhaps giving the wealthiest huge piles of money doesn’t necessarily cause those individuals and companies to spend it on raises.
It turns out that the rich actually are kind of like you and me; without some external incentive, the wealthy just keep those piles of money like anyone else would do.
Unfortunately while this has crept into the rhetoric it hasn’t yet made it into the policies. Every single tax policy on offer from the Republican candidates gives away the bulk of its proceeds (as a share, not an amount) to the rich.
The Right needs to step up to the plate here and put its own policies under a microscope. The candidates need to abandon their rhetoric about “the charred remains of a once-great country” because an honest broker would admit strong employment numbers. They need to explain why, if supply-side theory works, soaring inequality hasn’t led to even marginal gains for everyone else. Finally, and most importantly, the Republican presidential candidates need to suggest a real theory for the wage/growth paradox.
Market based solutions don’t have to amount to a collective shrug. They can involve smart, incentive-based plans that nudge when a Democrat would hammer.
Tonight watch to see if any of the candidates come up with one.
The next Republican Presidential debate starts at 9 p.m. ET this Tuesday, 11/10. Join TheStreet.com for live coverage of the event, starting with the under-card debate at 7 p.m. Tune in for stories, videos, and more, and make sure to follow us at @TheStreet on Twitter for live commentary by TheStreet Editor-in-Chief Jeffrey Kanige during the debate.