– In his early February annual State of the Union address, US President Donald Trump typically hailed his own policies for increasing wages and jobs to achieve record low US unemployment. Directly appealing to labor for a second term, Trump claimed exclusive credit for the US “blue-collar boom.”
Anis Chowdhury.
‘Blue-collar boom’
During his previous two State of the Union speeches, Trump also directly appealed to blue-collar Americans who put him in the White House in November 2016. As Trump claims manufacturing workers have been the main beneficiaries of his economic policies, including his trade and other policies, this seemed likely to dominate his re-election campaign.
In fact, US manufacturing growth had slowed to its lowest level in August 2019 when the purchasing managers’ index fell for the first time since September 2009. Despite his bombast, Trump has failed to reverse the continuing decline in manufacturing’s share of GDP.
Nominal wages have risen by an average of 2.2% since Trump took office, but real wages fell 3.9% after adjusting for inflation. Real labour compensation, including fringe benefits, has declined 4.3%! Meanwhile, more than 53 million Americans, or 44% of all workers aged 18-64, earn low hourly wages, getting barely enough to survive.
US unemployment fell to 3.5% in December 2019, its lowest level since 1969, before rising again. However, the story behind the headline unemployment figure is less impressive.
For example, in January 2020, 1.3 million individuals who wanted work, were not counted as unemployed because they had not actively sought work in the preceding four weeks. This figure shot up to 9.4 million in May 2020, declining to over 8.6 million in June.
Of these, ‘discouraged’ unemployed, who believed that no jobs were available for them, more than doubled from 337,000 in January 2020 to 681,000 in June.
Trump himself had ridiculed official unemployment data in 2015, describing them as “phony,” lambasting the practice of excluding people who have given up looking for a job from unemployment statistics. The headline unemployment figure also does not include those working part-time who want to work full-time.
Jomo Kwame Sundaram.
The high US incarceration rate lowers its jobless rate by about 1%. The US has the world’s highest incarceration rate, with more than two million in prisons. Many are discouraged African-American and Hispanic unemployed workers, jailed for minor crimes, often petty drug offences.
US workers better off?
Three-fourths of the post-Second World War (WW2) decline in the labour share of GDP (i.e., paid as wages, salaries or employment benefits) has happened since 2000, after little change in the second half of the 20th century!
Overall US labour share of nonfarm business income fell from 65.4% of GDP in 1947-50 to 61.1% in 1994-98, before rising to 63.3% in 2000, and falling thereafter. After recovering from a nadir of 52.4% in 2013 to around 57% during Obama’s second term, labour’s share fell to 53% in 2018.
Low unemployment has undoubtedly raised nominal wages, but after adjusting for inflation, the median household income was roughly the same as two decades before, while the average real wage has barely changed, rising just 0.42% from December 2016 to September 2019.
Meanwhile, the value of fringe benefits – including health insurance, retirement and bonuses – declined by 1.7% during Trump’s first three years. 1.9 million more Americans lack health insurance coverage, raising the total to 27.5 million, i.e., 8.5% of the US population in 2018.
Thus, despite declining joblessness before the pandemic, aggregate real compensation fell 0.22% under Trump. Average real hourly earnings of US$23.24 in March 2019 were not higher than at its peak in March 1974.
With the pandemic, real (seasonally adjusted) average hourly earnings for all employees dropped 0.9% from April to May 2020, while nominal earnings of private nonfarm payroll employees fell 66 cents to US$29.37 in June 2020 from US$30.03 in April.
Meanwhile, labor income inequality has increased, with declining real incomes for the unskilled and poorly skilled, as remuneration gains have mostly and increasingly gone to the highest-paid, mainly executives.
Infecting the numbers
Following policy responses to the Covid-19 pandemic, the US labour force participation rate (share of civilian population aged 16 and older working or looking for work) fell from 63.4% in January 2020 to 61.5% in June, well below the pre-financial crisis peak of 66.4% in January 2007, and the post-WW2 high of 67.3% in early 2000.
Job growth has slowed with Trump’s trade wars, with significant job losses in electorally key states. While 2018 saw 223,000 new jobs created monthly, this average fell to 184,000 in the last quarter of 2019. The 1.2 million ‘long-term unemployed’ (jobless for at least 27 weeks) accounted for 19.9% of the unemployed in January 2020, rising to 1.4 million in June.
Apparently, the US jobs survey mistakenly counted 4.9 million unemployed as employed! If corrected, the unemployment rate would have risen to 16.1% in May, and the rate for April would have been more than 19.5% – instead of 14.7%.
According to the Peterson Institute for International Economics (PIIE), even the very large increase in official unemployment since March is underestimated. Adjusting for the extra 4.9 million unemployed, and 6.3 million who have left the labour force since February, the PIIE’s more ‘realistic unemployment rate’ was 17.1% in May, the highest in over seven decades!
However, despite admitting the error, the US Bureau of Labor Statistics (BLS) has not corrected the official numbers “to maintain data integrity.” As the BLS regularly updates its estimates, its decision not to do so in this case has triggered calls for investigation.
As part of the US$2 trillion stimulus package, US$350 billion in ‘forgivable’ loans have gone to small businesses to retain staff. Businesses could access the funds if they retained or rehired laid off workers by the end of June, raising the month’s job numbers. Many employers acknowledge they will lay off these workers once the subsidies run out.
Nevertheless, the job retention programme may be extended beyond October to cover the early November polls. Meanwhile, the Becker Friedman Institute at the University of Chicago estimates that 42% of people “furloughed” will never get their old jobs back, while only 30% of those laid off will land new jobs later this year.
Spinning for a second term
Unsurprisingly, Trump is elated with the latest BLS unemployment figures released on 2 July, showing declines for a second consecutive month from 13.3% in May to 11.1% in June. Trump greeted the news, bragging, “Today’s announcement proves that our economy is roaring back”.
In his ‘victory lap’, Trump described the June jobs report as “affirmation of all the work we’ve been doing,” probably hoping it is the ‘good news’ he has been desperately seeking since his ratings started slipping due to his pandemic mismanagement.
He specifically highlighted the “historic” sharp drop in Black unemployment, falling from 16.8% in May to 15.4% in June. Trump also cheered the soaring stock market, largely fuelled by US Fed monetary policy, claiming the economy was on “a rocketship.”
Yet, if enough low-wage workers do not buy into Trump’s story, he will be in trouble come November. But it is not yet clear how US workers view their situation and options, who they will blame, how far Trump will go to secure re-election, and how the electorate will vote.
