Corporate America’s shareholder-first ethos is holding back wage growth. The United States economy added a healthy 228,000 jobs in November, which was more than expected, but wage growth remained tepid. President Trump claims the Republican tax bill will lead to big raises, but most companies plan to spend any profit on buybacks and dividends.
The economy appears to be at full employment with a jobless rate of 4.1 percent, but that hasn’t put pressure on pay yet. Average hourly wages were up 2.5 percent in November from a year earlier, the same pace that has prevailed for more than two years, the Bureau of Labor Statistics said Friday. Most analysts think the numbers virtually ensure that the Federal Reserve will raise interest rates by another quarter point next week, but a Goldilocks economy of modest wage growth should keep further tightening gradual and reassure markets.
Gary Cohn, Mr. Trump’s chief economic adviser, told CNBC on Friday that tax cuts would usher in a long period of wage growth. The White House Council of Economic Advisers has said the proposed corporate rate cut to 20 percent from 35 percent, combined with full expensing for capital investments, would increase average household income by at least $4,000 a year after a decade.
Try telling that to the C suite. Many executives view repaying investors as a higher priority than increasing wages or hiring. Honeywell, Coca-Cola, Amgen and others have said they will use any tax windfall in part to increase dividends, buy back shares and repay debt. Hilton’s chief executive echoed those comments on Thursday. A Business Roundtable survey of chief executives released Tuesday showed a slight drop in projected hiring for the next six months.
Companies are also worried about angering activist investors, who push to increase shareholder value through cost cuts and deals. Procter & Gamble, General Electric and Whole Foods are among the companies targeted this year. Activist campaigns at companies with a market value of at least $10 billion jumped by 66 percent in the first half of 2017 from the same period last year, according to ActivistMonitor.
Mr. Trump himself has made shareholder moves a barometer of his success. On Wednesday, he bragged that even before the growth that will come with tax cuts, the stock market “has hit record highs 81 times since our election victory.” When the market is king, workers tend to come last.