One year in: Has Trump been good for US workers?

Donald Trump was elected President in 2016, at least partly due to the anger of less-educated white workers, particularly against immigrants and international trade policies. He very skillfully exploited that anger, promising that, if elected, he would fight for better trade deals and limited immigration, as well as a range of other policies to help these workers

After one year in office, is Trump making good on these promises? In this essay, I argue that Trump’s policy actions to date provide meager help to those who so enthusiastically supported him, and mostly in the short term—while, over the longer term, these policies will likely cause them more harm than good.

Trump’s impact on the overall health of the job market, for which he takes a great deal of credit, as well as the impacts of the recently signed tax bill on workers, have been well-discussed elsewhere. Very simply, there is little evidence that Trump’s policies have raised the pace of growth in the job market beyond what was happening in 2015 and 2016;¹ and it appears as though the fairly meager benefits of the tax cuts for non-college educated U.S. workers will be outweighed by the costs over time of paying for them with lower government benefits or higher taxes.²

I therefore focus on other important Trump policies affecting labor—namely, regulatory cuts, trade and immigration, education and workforce development, and policies to “make work pay” for the unskilled.

Weakening Regulation

Donald Trump has already made his mark as a deregulator, cutting several Obama-era regulations that directly affect workers—for example, rules raising the numbers of workers with earnings covered by overtime pay or requiring financial advisers to act more clearly in the “fiduciary” interests of their clients. He has also limited or cancelled others that indirectly affect workers, like climate regulations or those covering the financial markets in the Dodd-Frank legislation.

There is little doubt that limiting regulation can reduce employer costs and improve production, employment and earnings of workers, in manufacturing and other sectors. But the economic benefits of lower regulation must be balanced against the benefits workers will forego and the higher risks of financial and climate disasters over time, and our knowledge of the exact magnitudes of these benefits and costs is limited. Still, given what we know, it’s quite unlikely that workers’ interests will be served in the long run by Trump’s regulatory changes.³

Very simply, there is little evidence that Trump’s policies have raised the pace of growth in the job market beyond what was happening in 2015 and 2016.

Trade and Immigration

To-date, Trump’s primary policy change in this area has been to withdraw the U.S. from the Trans-Pacific Partnership (TPP) and to demand some renegotiation of terms on the North American Free Trade Agreement (NAFTA) with Canada and Mexico.⁴ It is too soon to tell what changes, if any, will be made to NAFTA, but we can render some judgments on the likely effects of American TPP withdrawal on our workers.

Though the effects of withdrawal in the next decade may not be large, they seem likely negative. As many analysts have pointed out, the reductions in tariffs protecting the markets of our Asian partners would have been greater than our own tariffs, leading our exports to rise more than imports. In addition, wages in exporting industries tend to mostly be higher than those in import-sensitive sectors like nondurable manufacturing.  Thus, overall GDP under TPP would likely have risen.⁵

Additionally, higher federal budget deficits will almost certainly raise the value of the dollar relative to foreign currencies and cause further damage to our trade balance. This will make our exports more expensive and our imports cheaper, leading to less of the former and more of the latter. Indeed, the negative effects of federal deficits on our current account balance might be the most significant effect of Trump on international trade outcomes in the US during his time in office, and it will likely be negative.

But perhaps more importantly, our withdrawal from TPP leaves a large vacuum in economic and geopolitical leadership in Asia, which will almost certainly be filled by China. It is hard to imagine any circumstances under which this development, over time, will benefit U.S. workers.

Regarding immigration, a collection of small and large actions will likely have the cumulative effect of discouraging immigration to the U.S. of both highly- and less highly-educated workers from abroad, even if no further legislative reforms to immigration are undertaken. Trump’s most important action to date has arguably been his cancellation of the Deferred Action for Child Arrivals (DACA) program (though this currently is being address during budget negotiations between the President and Congress), but the Administration has also pursued the controversial travel ban, the cancellation of Temporary Protected Status (TPS) for Salvadoran refugees, heightened deportations of undocumented workers, and ongoing talk of ending “chain immigration” across family members.

Will the reduction in immigration improve the job prospects of native-born U.S. workers? The high rate of business startups and patents secured by such immigrants suggests any reduction in immigration from highly-educated workers only harms the U.S. economy.⁶ At a time when the U.S. labor market has become more sluggish, discouraging the entry of international graduate students or highly-skilled immigrants seems very ill-advised.⁷

The net economic effects of discouraging immigration among less-educated workers is more mixed. Prominent labor economists, such as George Borjas and David Card, have generated quite different estimates of the impacts of such immigration on native-born, less-educated Americans. A reasonable average of their estimates implies that immigration has reduced their earnings by maybe 3-4 percent since 1980, though the estimated loss should also decline over time as foreign capital responds to lower wages by entering the U.S. at greater rates and raising worker wages.⁸

At the same time, these immigrants reduce consumer prices in some key sectors, like housing, food, shelter, and medical/elder care – thereby contributing to the real incomes of U.S. workers. They also contribute to labor force and revenue growth in the U.S. just when native-born Baby Boomers are retiring in great numbers and putting downward pressure on overall economic growth and federal revenues.⁹

Overall, the positive contributions of low-skilled immigrants to real income, labor force activity and federal revenues (and therefore to the solvency of programs like Social Security and Medicare) are perhaps large enough to outweigh their modest downward pressure on the wages of less-educated, native born workers—leading me to believe we should reject proposals that would drastically curtail such immigration.¹⁰ Overall, the net effects of Trump’s actions on trade and immigration will likely be negative to the U.S. economy and to native-born workers over time.

Worker Skills: Education and Training

While issues like trade and immigration are highly emotional ones for many U.S. workers, the ability of U.S. workers to gain education and skills that the labor market values is arguably much more important to their economic well-being over time.

One year into the Trump administration, the most important effects in this area might derive not from any explicit policies, but from the unanticipated consequences of the tax cuts passed in early 2018. These tax cuts will likely discourage important education and training initiatives at all levels in the coming years – federal, state and local.

On the federal level, the growth of budget deficits caused by the tax bill will almost certainly preclude major new investment initiatives, like expanding high-quality pre-kindergarten programs or community college job training efforts. Important existing programs, like Pell grants for low-income college students, face major risks as well.

But even before the tax cuts were enacted, the Trump Administration had proposed large cuts in funding to already-shrinking federal training programs run by the Department of Labor, on top of the very large reductions that have already occurred over time.¹¹ I expect to see these cuts implemented and growing over time.

But public education in the U.S. at the K-12 and postsecondary levels is overwhelmingly funded at the state and local levels. The decision of Congress to impose $10,000 caps on the deductability of state and local taxes will almost certainly put pressure on many states to cut such funding. To some extent, this has already been occurring. Overall state revenues for higher education have been declining over the past decade in real value, and the tax cut will likely accelerate that trend.¹²

Furthermore, recent state-funded innovations in both “red” and “blue” states, to train workers for high-demand jobs might also be at risk as public spending becomes costlier.¹³

In the summer of 2017, the Administration announced an initiative to double the federal expenditures on apprenticeships from $100 to $200 million (carved out of existing Labor Department funding). The initiative seeks to spread new apprenticeship models that might have more employer uptake because they are less regulated than the current model of “registered” apprenticeship.  This idea merits some experimentation and careful evaluation to measure its effects. But since we have strong evidence of the positive impacts of registered apprenticeship on worker earnings, and none for unregistered models, we should move cautiously in this area before changing existing policy.¹⁴

Lastly, the strong convictions of Education Secretary Betsy DeVos around school choice mean we can expect an expansion in the support of private and for-profit schools. While expanding student choice through publicly funded charter schools is warranted by research evidence, this is much less true of private schools and vouchers.¹⁵ Furthermore, the research on for-profit higher education is quite negative, showing much higher costs than public two-year and four-year colleges, much higher rates of student default on loans, and lower value among employers in the labor market. We should therefore proceed very cautiously in this area, and continue to demand appropriate regulation of the for-profit educational sector.¹⁶

Policies to “Make Work Pay”

Policies at the federal, state and local levels to increase compensation take many forms besides just education and training. These efforts include raising the statutory minimum wage and expanding publicly funded benefits like health insurance (as done through the Affordable Care Act) or paid family leave. They can also entail expansions in tax credits for workers like the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC).

In a very different realm, federal and state governments can also undertake policies to more actively support or restrict collective bargaining, in either the private or public sectors, or to protect workers from wage theft, “noncompete clauses” in their employment contracts (which deny workers the right to take jobs with company competitors, thus restricting their bargaining power and wage growth opportunities), or very unstable work schedules.¹⁷

It was never likely that a Republican administration would support expanding collective bargaining or additional regulation of private employer decisions over wage and hours, and the determination of President Trump and congressional Republicans to kill the ACA is not surprising.

But the failure of the Trump Administration and Congress to even consider expanding the EITC in a tax bill that throws trillions of dollars at high-income individuals and corporations, is quite shocking and disturbing.

But the failure of the Trump Administration and Congress to even consider expanding the EITC in a tax bill that throws trillions of dollars at high-income individuals and corporations, is quite shocking and disturbing. For many years, conservative policy analysts or politicians (including House Speaker Paul Ryan) have signaled their support for an EITC expansion; it was commonly believed that this would occur as part of any larger tax reform effort.¹⁸

While the Child Tax Credit was doubled in size (from a maximum of $1000 to $2000 per child), its refundability for low-income families was increased by just $300, after Sen. Rubio threatened to withhold his support for the bill. This a very small consolation prize for the working poor, relative to the huge gains that will be reaped by the affluent from this bill.

Furthermore, in the absence of sensible federal legislation to moderately increase the minimum wage (President Trump supported a $10 minimum wage on the campaign trail) or provide paid leave (which both Trump and his daughter Ivanka have endorsed), many states are moving ahead on their own. Over 30 have already enacted statutory minimum wages above the federal level (now at $7.25), some going as high as $15 an hour in the process. About a half dozen states (including Washington DC) are enacting paid worker leave.

Of course, it is not necessarily negative for states to enact such policies with different levels of generosity. Some cities or states (like Seattle or San Francisco) have higher costs of living and higher concentrations of skilled workers than do many others, it is sensible for these localities to enact higher minimum wages or more generous paid leave than do others.

But I fear that an absence of federal policies has created too much variance across states in minimum wage levels, benefits like paid leave, and regulation of employer hiring behavior (through initiatives like “Ban the Box” that limit employer ability to ask their workers about having criminal records in their past). Indeed, some jurisdictions like Washington DC are embracing the $15 minimum wage, generous paid leave, and a range of limits on employer permission to screen their job applicants; others, like Arlington VA – located right across the river from DC and easily accessible through public transit – has adopted none of these. These enormous differences could induce employers to relocate geographically from higher- to lower-cost jurisdictions, or to economize on their hiring of low-skill labor in high-wage locations by implementing labor-saving automation more rapidly.¹⁹

What Will Happen in 2018 and Beyond?

It is possible that President Trump and his congressional allies, moving into an election year, will try harder to find common ground with Democrats on issues to benefit less-educated workers. Cooperation on infrastructure, for example, would be popular politically and perhaps more likely to occur. Such a bill would create an opportunity to spread skill-formation and good jobs to many unskilled workers who now lack them. And, given the difficulties construction contractors are having recruiting and training workers as their Baby Boomer workers retire, incentivizing employers to train more such workers for lucrative constructions jobs would be a win-win.

At the same time, the budget deficits generated by the tax bill, along with conservative ideology (and the fact that the Norquist “No Tax” pledge has been signed by almost all congressional Republicans), might make it impossible to generate sufficient funding for new infrastructure development with any serious scale. And, considering the fact that an increase in federal dollars for workers training will face near certain opposition in the Republican Congress, it’s not at all clear that a major infrastructure initiative will be beneficial to many currently low-wage workers.

It’s also likely that, in 2018, House Republicans will push to reduce benefits and require more work from low-income benefit recipients in programs like the Supplemental Nutrition Assistance Program (SNAP, or Food Stamps) or Medicaid. Indeed, the Trump Administration has already allowed states to require Medicaid able-bodied recipients to work as a condition for remaining in the program.

But, to ensure that these changes do not harm low-income  recipients who desperately need these benefits, and to really provide positive effects on their work experience, the work rules would have to be accompanied by a broad range of fairly expensive additional services, such as: careful assessment of worker employability, work supports like transportation and child care for those who need them, clear exemptions for parents of small children and those who are disabled or opioid-dependent, increased access to community college or employer-based training for those who can benefit from it, access to subsidized private sector jobs, and a guarantee of public sector work or service activities if none can be found by the recipients.

It seems highly unlikely that states which adopt the Medicaid work rules will agree to such an expansion of their obligations to recipients.

Conclusion

After one year in office, President Trump has provided “feel-good” rhetoric to the white non-college workers who enthusiastically supported him, and policy actions that will deliver modest short-term benefits for them but larger long-term costs.

The labor market overall is improving, but at roughly the same pace as it did under President Obama. The tax and regulation cuts enacted by the Administration offer modest and mostly short-term rewards with much greater costs and risks over the longer term. Much the same can be said about his trade and immigration policies, which may be pleasing to his supporters but ultimately will raise consumer prices, lower innovation and growth in the U.S., and hurt our fiscal balance domestically and our influence overseas.

On education and training, the deficits generated by tax cuts will put great pressure on existing investments in human capital (like Pell grants for the poor and Labor Department training programs), and preclude important new federal investments in everything from pre-K to community colleges. Perhaps more importantly, the pressure put on state and local public spending from the cap on deductions for state and local taxes will likely inhibit both K-12 and higher education investments, as well as important workforce innovations.

Finally, efforts to “make work pay” for low-income workers have grown too modestly (in the case of the Child Tax Credit) or not at all (in the case of the EITC). Efforts to eliminate the Affordable Care Act have mostly failed, but the elimination of the individual insurance mandate in the tax bill could weaken it considerably and reduce coverage for millions of less-educated workers.

And while the Trump Administration does nothing to moderately raise the federal minimum wage or provide paid family leave to workers, an enormous divide is opening between states implementing these policies on their own—sometimes at very high levels, like the $15 minimum wage—and those that don’t. Potential negative impacts on low-wage worker employment prospects in very “blue” states might well result, as employers relocate away from or accelerate their automation of low-skill jobs.

Over time, I’m afraid those workers who have enthusiastically supported Donald Trump in the 2016 election and beyond will  be very disappointed by the lack of progress or harm his policies inflict on them.