Focus on Wages, Not Job and GDP Figures, to Determine True Health of Economy

Though the past few months have spawned some excitement surrounding the positive job and GDP growth numbers, alone, these measures do little to indicate the true health of the economy for most American people. Wages have been and continue to be flat, particularly since President Donald Trump took office — this, despite soaring credit card, mortgage and higher education debts, rising costs of child care and crumbling infrastructure, among other rising costs of living. Indicators like this put into focus the need for a comprehensive assessment of the actual success of the nation’s economic priorities.

Rather than obsessing over capricious numbers absent any real context, a more accurate assessment of the health of the economy must look more closely at earnings – an indicator that shows the true progress (or lack thereof) facing many workers.

Wages are indeed flat, having risen just 0.89 percent since January of 2017, under 1 percent real wage growth. But what does this mean for the majority of Americans? For starters, and despite the fact that we’re seeing positive GDP growth, the benefits are not “trickling down” the way they were stated to; in other words, the system in which our economy functions has neither fairly nor equitably distributed wage gains to workers.

And it’s not just lagging wage growth that underscores the issue of lackluster growth. Today, more people are choosing not to work than they once did. Some are being pushed out of the labor force who otherwise may have been working or would have wanted a job, partly due to low labor demand – more proof that the labor market is not as tight or attractive to workers as it could be. Indeed, the ratio of working age adults is still well below the 81 percent rate we had in the 2000s.

Though positive quarterly GDP growth is important in its own right, using this as a singular measure of overall prosperity is insufficient. Previous analysis explains that benefits of GDP growth are not shared equally and have instead increasingly gone to those at the top, including through the recent tax cuts that disproportionately went to corporations and the wealthy.

In an ideal economy that values growth of the working class, low unemployment should also compel wage increases since workers wouldn’t have to settle for lower compensation than they would otherwise have wanted – also identified as “underemployment.” In simpler terms, as the pool of workers actively seeking jobs becomes smaller, workers have more bargaining power and can negotiate for higher wages or turn down a less-than-adequate job for another one.

Additionally, just because someone isn’t officially counted as unemployed, they may still be participating in the labor force. Take, for example, someone who is employed part-time for economic reasons to supplement their household income and living expenses. When we consider more comprehensive measures that include part-time workers for economic reasons, as included in the more inclusive U6 unemployment rate, we see unemployment more than double the traditional measure.

Though the proportion of Americans who are part-time for economic reasons is inching downward, it is still above pre-recession levels, another indicator that standard unemployment measures alone do not account for — as well as further evidence that we still have a lot of growing to do, particularly for those who need it most.

So, despite low unemployment numbers and high GDP numbers, the reality behind wages, growth and underemployment suggests that workers may not be seeing the gains and opportunities of a booming economy that they should. Instead, real wage levels suggest that these figures may be overstating the economic prosperity of the past few years and instead signal that workers may be settling for jobs with lower wages than desired, simply to get by.

Further, despite people having jobs, it’s not clear that low unemployment in itself means that people have access to good jobs with decent pay and benefits, nor that they have the safeguards needed if ever they may face an unforeseen financial emergency, like an accident, unexpected job loss, or home repairs, to name a few. In fact, most people don’t even have enough savings to cover an unexpected $1,000 emergency.

Moreover, fruitful assertions about the state of our economy should be taken with a healthy grain of salt until we can see that these gains have truly been shared equally and among all tax brackets.

It is vital to consider the full backdrop of factors affecting American workers when assessing the health of the economy for all. If not, we will continue to fall for the false claims lauding fantastical growth and prosperity that will surely make headlines as the newest data gets released.

Daniella Zessoules is a special assistant for economic policy at the Center for American Progress.

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