Back To Career News

After Tax Cuts, Wages Declined in 80 Percent of Industries

Topics: Current Events

President Donald Trump signed The Tax Cuts and Jobs Act into law in December 2017, slashing the corporate tax rate from 35 percent to 21 percent. In January of this year, Speaker of the House Paul Ryan predicted that the average American worker would see trickle-down gains of $4,000 to $9,000 as a result.

The latest data show that wages declined instead. The PayScale Index, which measures the change in wages for employed U.S. workers, updated last week and showed that wages declined 0.9 percent last quarter.

The earnings picture is worse when you take inflation into account. Real wages dropped 1.8 percent from Q1 to Q2 — the largest decline in seven years. Eighty percent of industries saw wages decline.

“The Q2 Index shows the benefits of recent changes to the tax policy are largely reaped by business owners, not employees. Many corporations are using the additional money to buy back stock rather than increase wages,” said Katie Bardaro, Vice President of Data Analytics and Chief Economist at PayScale, in a statement.

[click_to_tweet tweet=”Real wages dropped 1.8 percent from Q1 to Q2 — the largest decline in seven years.” quote=”Real wages dropped 1.8 percent from Q1 to Q2 — the largest decline in seven years.”]

Where Wages Are Rising

Bardaro noted that there are exceptions to this decline.

“We are seeing higher wage growth for certain jobs as the tightening of the labor market continues and demand for certain talent outpaces supply,” she said.

For example, jobs in Accounting & Finance, Art & Design, Information & Technology, and Science & Biotech all saw year-over-year gains of 2 percent or more last quarter. On the industry side, it was a good quarter for workers in Finance & Insurance, Nonprofits, Technology, and Engineering & Science — all areas where wages grew 2 percent or more.

The bottom line is that “our current strong economy disproportionately benefits employees that are in demand, in addition to shareholders and executives, while the average worker is left behind,” said Bardaro.

Where Did the Gains Go?

Two words: stock buybacks. According to the research firm TrimTabs, U.S. companies have invested in a record-setting $436.6 billion worth of stock buybacks in Q2 2018. That’s nearly double the previous record … which was set in Q1 of this year.

“When a company buys back some of its outstanding shares, the effect is usually to boost the value of the rest of its stock, sometimes making the company appear more valuable on paper,” explains Irina Ivanova at CBS News. “Because many senior executives are paid in company shares, buybacks temporarily boost their pay (as well as other shareholders’ portfolios), sometimes at the expense of investments in infrastructure or workers.”

Stock buybacks aren’t necessarily good for companies in the long run, either. Per The Wall Street Journal:

…57% of the more than 350 companies in the S&P 500 that bought back shares so far this year are trailing the index’s 3.2% increase. That is the highest percentage of companies to fall short of the benchmark’s gain since the onset of the financial crisis in 2008, according to a Wall Street Journal analysis of share buyback and performance data from FactSet.

And the historic spending spree on share buybacks has some analysts worried companies are buying their shares at excessive valuations during the peak of the economic cycle and at a time when the market rally is nine years old.

Ivanova notes, however, that some economists advise caution in assessing the effects of tax cuts, as it can take up to four years for changes to make an impact.

For now, workers are still waiting for bigger paychecks.

Do You Know What You're Worth?

Tell Us What You Think

Have you seen a wage increase this quarter? We want to hear from you! Leave a comment or join the discussion on Twitter.

Jen Hubley Luckwaldt
Read more from Jen

Leave a Reply

Notify of
What Am I Worth?

What your skills are worth in the job market is constantly changing.