Less than a year ago, in January 2020, Gallup reported that U.S. economic confidence had reached its highest level since 2000, with a record-low percentage of Americans citing economic issues as the most important problem facing the country. Gallup also found that Americans’ optimism about their personal financial outlook had soared to record highs as well.
In February, the national unemployment rate stood at 3.5 percent — tied for a 51-year low — and wage growth remained relatively strong for workers in low-wage industries. “This is by many measures the best environment for workers in years,” Ben Casselman of the New York Times wrote on February 7. That included workers with disabilities and criminal records.
We all know what happened next: The novel coronavirus erupted, cities and states across the country locked down, and the economy plunged into recession.
To restore the tight labor market that prevailed before COVID-19, policymakers must first understand what actually happened during the pre-COVID economic expansion.
Citing unemployment and GDP-growth data, liberal economist Alan Blinder recently argued that the Trump economy represented merely a continuation of trends that began under President Obama. Conservative economist Larry Lindsey replied that Trump’s policies gave “new life” to an expansion that was already more than seven and a half years old when he entered the White House.
“The Obama recovery,” Lindsey noted, “which was subpar in virtually all respects, ultimately underperformed the Fed’s expectations in terms of GDP growth and the unemployment rate, while the Trump portion of the recovery consistently outperformed expectations.”
Interestingly, neither Blinder nor Lindsey mentioned labor-force-participation rates or income growth — crucially important metrics for measuring economic performance over time.
Under Trump, as economist Karl Smith of Bloomberg pointed out last month, the labor-force-participation rate among prime-age workers — those 25 to 54 — “saw its first sustained rise since the late 1980s.” When Obama took office in January 2009, the prime-age participation rate was 82.9 percent. When he left office in January 2017, it was 81.4 percent. In February 2020, it was back up to 83.1 percent.
The trends among prime-age men tell a similar story. The month Obama took office, the prime-age-male participation rate was 90 percent. The month he left office, it was 88.8 percent. In February 2020, it was back up to 89.3 percent.
What about income growth? “In 2016, real median household income was $62,898, just $257 above its level in 1999,” Smith observed. “Over the next three years it grew almost $6,000, to $68,703. That’s perhaps why, despite the pandemic, 56% of U.S. voters polled last month said their families were better off today than they were four years ago.”
It’s worth emphasizing that, before COVID, wage growth was particularly strong for workers at the bottom end of the income scale.
“Wages for rank-and-file workers are rising at the quickest pace in more than a decade, even faster than for bosses, a sign that the labor market has tightened sufficiently to convey bigger increases to lower-paid employees,” the Wall Street Journal reported in December 2019.
What does all this mean for U.S. economic policy in 2021 and beyond? Here’s how Smith concluded his recent article: “Trump proved that an aggressive growth strategy can improve the fortunes of the average American family. That strategy should continue.”