Why Seattle Could Be an Important Test Case for Trump's Tax Overhaul

Simply waiting for a rising economic tide to lift all boats is a dubious strategy, as we may soon see in Seattle.
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This article appears in print in the February 2018 issue. Click here for a free subscription.

The nation’s new tax overhaul may give a short-term boost to the economy by pouring hundreds of billions of dollars into the pockets of businesses and, temporarily, individuals. But will it also bolster wages of working men and women over the long term as its proponents suggest? Seattle could prove an important testing ground.

Nationally, unemployment has fallen to 4.1 percent, the lowest level in 17 years. Such a tight labor supply, economists have long argued, should lead to higher wages. Yet, nationwide, average wages rose just 1.1 percent last year, according to recruiting site Glassdoor.

In the Seattle area, where the unemployment rate is down to 3.8 percent, salaries have finally started to inch up. “Unemployment insurance data shows wages growing faster, especially in the high-demand tech sector,” says Steve Lerch, chief economist at the Washington State Economic and Revenue Forecast Council. Workers in short supply, such as cooks, plumbers and electricians, are seeing wages rise nicely as employers compete for their services. But Glassdoor reports median wages in Seattle increased on average by just 1.6 percent last year — not enough to keep up with the 2.2 percent inflation rate and certainly not enough to cover sharply higher housing costs.

With federal tax cuts stimulating the national economy, Lerch thinks the state’s economy could grow this year by as much as 2.7 percent. In the Seattle area, job growth will be closer to 3.5 percent, adds regional economist Dick Conway. With baby boomers retiring in large numbers and continued growth reducing unemployment, the shrinking labor supply should eventually drive up wages.

But will those increases be enough to make a difference, and will they be sustainable?

Conway is skeptical. He says new jobs in Seattle have historically lured new workers to the region. That’s good for the economy. “We are creating jobs faster and people are moving here, which then expands the economy even more,” Lerch acknowledges. But the arrival of new workers, combined with weakening labor unions, Boeing’s shrinking presence and increased foreign competition, may keep a lid on salaries. 

And even when wages do rise, their benefits tend to be focused on the relative few with jobs that are in the most demand. Inflation eats away at any benefits for the others.

For sustained prosperity in our region, we need businesses to work with government to help teach new skills to the underemployed, “discouraged” (and often older) workers. We need innovative business models that combine technology with human labor to boost productivity — and to create jobs that add important value.

One good example is Redfin’s hybrid approach to real estate (see our February issue). The unique way in which the company combines technology with a team of real estate agents enables its lead agents to be three times as productive as the average agent. That higher productivity, in turn, has allowed Redfin to provide security and generous benefits to full-time agents. 

Without innovative new strategies tapping workers who live in our region, we run the risk of creating an economic boom that doesn’t bring prosperity to those who live here.

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