According to recent jobs numbers, the unemployment rate in the United States has improved, but the amount of money people earn remains sluggish at best. The result is that more people are working, but that they are still struggling to afford every day items. Where once a family could get by on one full-time income, this same family might now have a hard time getting by with two. That’s why it is important to consider both numbers when consider the health of the economy.
Recent Unemployment Trends
To start, let’s look at the unemployment numbers. Back in May of 2018, the unemployment rate dropped to 3.9 percent, which is the lowest it had been since 2000. This continued the overall trend of a dropping unemployment rate which began back in 2010, after the financial crisis. Considering that you’re never going to get to zero unemployment, 3.9 percent is a decent number.
However, this number doesn’t paint the entire unemployment picture. It does not count the people who have given up looking for work. In addition, the labor force participation remained at 63 percent.
Wage Growth History
While the unemployment numbers may seem promising, you need to consider them alongside the wage numbers. Just because more people are working doesn’t mean there are more people who are able to earn a living. Many people remain underpaid for their jobs and can’t afford basic necessities even though they are fully employed.
If you look at the average hourly private sector wage growth numbers from this past April, you will see that they went up 2.6 percent. This may sound good, but at the same time inflation went up another 2 percent. So even if people are earning more money than they were previously, it is not making much of a real-world difference.
According to the Pew Research Center, “today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago.” Pew went on to add that “What wage gains there have been have mostly flowed to the highest-paid tier of workers.” What this means is that for the average worker the cost of living has risen at roughly the same rate as their wages. This is not the case for the highest-paid workers, who received a much higher wage increase relative to the cost of living.
Why the Wage Growth Numbers Matter
It’s important to consider the wage growth numbers when examining the economy. While the unemployment numbers get the most attention, they don’t tell the entire story. Having a full-time job doesn’t help you much if you’re still unable to meet your expenses. And often you are unable to meet your expenses on a full-time job because the cost of living has gone up faster than the wages.
If changes aren’t made the average citizen in the United States will continue to see their wages par for less and less. So instead of saving up for their kid’s education, or going out for a nice dinner, they will resort to borrowing from their friends and family just to get by. This will only hurt the economy, as the average citizens are the ones doing most of the purchasing and spending. If they don’t have discretionary income, this becomes impossible to do.
Recent Tax Law Changes
Recently, the Trump Administration and Congress passed a massive tax overhaul. In it, they provided larger tax breaks to the wealthiest Americans and large corporations. Their reasoning was that if these people and corporations had more money to spend, they would use it to pay their works more and to grow their business. Time will tell if this ultimately proves to be true, but the early indicators are not promising.
According to Time.com “many companies are returning huge portions of their billions in tax savings to shareholders in the form of share buybacks and dividend increases — not necessarily new hiring and investment.” This is great for investors in the company, but not for the workers.
The Economy Going Forward
The economy is always hard, if not impossible, to predict. Economists and government officials will continue to try to find ways to improve the economy – both the unemployment numbers and the wage growth numbers – but it’s hard to say if these efforts will be effective.
Hopefully changes will soon come that will impact the average citizen more positively. While it’s great that the unemployment numbers remain low, if we don’t couple that with a significant increase in average wages, most people will not feel the impact of a supposedly healthy economy.