U.S. job growth is up yet wage growth is slow

By Raz Koroh

The contrasting economic philosophies of a Republican and a Democratic President is plainly obvious – the former believes in individual self-help and the latter believes in communal effort.  For example, Bernie Sanders, the Democratic presidential candidate for the 2016 U.S. presidential elections strongly advocates the imposition of high taxes on the rich, low taxes on the poor and generally transferring wealth from the rich to the poor, via universal healthcare, social security and so on.  The belief is that such measures will not only make the average American citizen financially better off but also indirectly helps to increase consumption and hence the long term economic growth of the U.S. economy.  Is this view correct?

Here are two factors to consider.

Employer disincentive.  If the government of the day increases the opportunity for the general public to access universal healthcare, it means that an employer no longer has to bear the cost of his employee’s health care, which in turn will induce the employer to allocate to that employee a job that doesn’t produce enough value to cover the employee’s full cost.  This is a disincentive for an employer to ensure that if the economy wants employees covered by health care, they must produce goods and services valuable enough to cover the cost.  Ultimately, the employer will not be moved to innovate and move higher on the production chain which would have made the average American worker financially better off in the long term.  Instead, it can just end up as a nation of burger flippers.

Employee disincentive.  Likewise no one has yet adequately calculated the impact Social Security has had on the behavior of average Americans, which in fact diminish their propensity to save for themselves.  At worst, a whole generation of workers will likely choose to study non-commercial or non-technical subjects, which means that eventually they will be stuck with low paying jobs in future, whereas those who choose to follow the technical path will be amply rewarded with very high salaries, as innovation-based and technical occupations will face limited supply of qualified workers.  For the vast majority of workers will be stuck with a lifetime of low pay.  This will definitely affect the consumption power of U.S. workers to the detriment of slowing economic growth prospects in the future.

These two factors to a certain extent at best provides a good chance for workers who trains or retrains to take advantage of high paying innovation-based technical jobs.  At worst, as the cost of hiring a limited number of talented workers moves upward, which means that in the long term corporations will be less willing to locate their hi-tech factories in the U.S., and if that happens, the U.S. economy may stop growing altogether, as realistically hi-tech industry is the only sector that can move the U.S. economy forward.

Comments welcomed.