Corporate tax cuts were supposed to boost worker pay – they aren’t

A big question during the post-recession economic recovery was why companies weren’t sharing more of their profits with employees in the form of raises, especially after the Republican-led Congress moved to slash corporate taxes. Although President Donald Trump said last year that the cuts would lead to a pay bump for workers, new research suggests that raises may remain elusive in 2019.

About 70 percent of corporations say they plan to boost worker pay by 3 percent this year, according to compensation-data company PayScale. That’s in line with the raises employers have offered in recent years and is only slightly ahead of the U.S. inflation rate of roughly 2 percent.

The upshot: At a time when corporate profits remain healthy and the economy on track for another solid year of growth, pay gains for most workers will be modest. The findings are based on a PayScale survey of about 7,000 corporations.

Two major factors are keeping a lid on raises, said Lydia Frank, vice president of content strategy at PayScale. First, companies are increasingly using profits to repurchase their own stock — that benefits shareholders more than workers, with spending on such buybacks reaching a record $1 trillion last year. Second, a growing number of companies expect the U.S. to face another recession in the next year or two, and so are looking to curb spending.

“It’s been a little confounding, why wages haven’t increased as much as you would expect given the robust economy,” Frank said. “And now there’s a lot of uncertainty going into this year” about an economic slowdown.

Despite that robust economic growth, workers’ “real wages” — what people take home after inflation — fell 1.3 percent last year. PayScale’s data differs somewhat from federal labor figures on wages because of differences in how the research firm crunches data. For instance, PayScale tracks workers who switch jobs, while the U.S. Department of Labor tracks a set of fixed jobs.

Recession planning

About 1 of 5 companies told PayScale they are already starting to prepare for a recession, including delaying capital spending, dialing back on hiring and making layoffs.

Most businesses also said that retaining key employees is a concern. With unemployment at its lowest rate in years and healthy job growth, workers have more opportunities to shift jobs — and many are doing just that. About 20 percent of workers who quit their jobs left for better pay elsewhere, while about the same share quit for a more attractive title, the survey found.

Better benefits and perks

Rather than offer fat pay raises, companies are boosting benefits and perks as a way to hire and retain employees, PayScale found. Forty-four percent of employers plan to offer remote work options this year, up from 39 percent last year, the study found. Other benefits that companies say they plan to add include a four-day workweek, education or tuition reimbursement, unlimited paid time off, and flex time.

“Even if you are in a head-to-head competition, with companies offering the same type of base pay, the only way to differentiate yourself is around benefits or your mission,” Frank said. “That’s where you see this benefits race.”

Some companies are also relying on bonuses and what PayScale calls “variable pay” to attract workers or keep top talent in place. Roughly two-thirds of companies say they’ll use bonuses to keep demand workers from departing for competitors.

Where the big raises are
Although most workers are likely to see only muted wage increases in 2019, some will enjoy much larger pay hikes, PayScale found. Last year, about 40 percent of employers handed out raises of at least 10 percent for a few jobs within their organizations, which tended to be for in-demand roles like IT positions.

“If you are in a super-competitive job with a skill-set that’s hard to find, you have more of an ability to negotiate,” Frank said.