More than 150 companies have announced bonuses or raises so far in 2018, as a sharp cut in the corporate tax rate produces a rare phenomenon–found money for corporations. Many CEOs credit the Trump tax cuts with boosting the competitiveness of U.S. businesses and generating more confidence about the future.
But CEOs aren’t normally altruistic, and it’s unlikely they’re throwing money around just to be generous. Instead, they’re responding to a tightening labor market by sweetening the deal for workers, at a time when Wall Street isn’t likely to care about rising labor costs–because the tax cuts will boost profits anyway.
The unemployment rate, at 4.1%, is at the lowest level in 18 years. There are roughly 6 million unfilled jobs in the U.S. economy, with more firms saying they can’t find the workers they need. Many economists think that should have pushed pay up by now—but it hasn’t, really.
The point is that the upward pressure on wages in the labor market has been there, but many businesses flat out lacked the money to respond. The lower tax burden afforded by the tax cuts frees up cash flows for businesses to respond to market forces in the labor market.