Up until now, federal interventions to mitigate the damage of the coronavirus pandemic, such as the March $2.2 trillion relief package and the executive order recently issued by President Trump in the absence of congressional action, have been short-term in nature. Stimulus checks and corporate bailouts might buy us time, but a long-term economic recovery requires something more. For several years, the Trump administration has been pursuing a long-term structural reform that fits the bill: streamlining regulations. Prior to the pandemic, regulatory reforms were working. In the post-pandemic economy, we may need them even more.
The Trump administration is the first in decades to follow through on its commitment toward genuine regulatory reform. Between 2017 and 2019, federal regulatory restrictions declined by 1.5 percent overall, rather than continuing to increase, as they have since 1996. The retail-trade and health-care sectors experienced the greatest declines, at approximately 9.5 percent and 4.8 percent, respectively.
While many, including us, believe that these policies have been highly beneficial to the economy, the current sky-high unemployment should spur us to revisit the question of who exactly has been benefiting from regulatory reform. Have the administration’s pro-business policies delivered wage gains for the American worker? Or is it mainly just big business benefiting? This question is given added urgency by the fact that the regions and companies receiving more loans from the Paycheck Protection Program were not necessarily the more economically distressed regions or companies.
There are plenty of reasons to believe that, broadly speaking, Trump’s economic policies were benefiting more than just the highest earners before the economic shutdown. Real total household and nonprofit net wealth increased by 12.1 percent over the first 11 quarters of the Trump administration. According to a report from the Council of Economic Advisers in January, these gains were concentrated among the bottom 50 percent of households, which experienced a net increase of 47 percent. Moreover, hourly wage growth for production and non-supervisory workers also hovered over 3 percent for more than 17 consecutive quarters. SNAP (food stamp) enrollment, among other measures of welfare dependence, declined considerably because of declines in the poverty rate.
While it is always difficult to assign credit for such things, in this case, it’s legitimate to give plenty to the Trump administration. Kevin Hassett, former chair of Trump’s Council of Economic Advisers, explained in 2018 that there is a structural break for many macroeconomic indicators between the latter years of the Obama administration and those from the Trump administration.
What’s more, there was nothing random about the strong economic gains enjoyed by blue-collar workers prior to COVID-19. Rather, it is linked to the administration’s focus on regulatory reform, an approach that needs to continue after the reopening of the economy.
A closer look at the data tells a consistent story. In original calculations using Bureau of Economics data and QuantGov, a machine-learning and policy-analysis tool developed by Mercatus Center researchers, we found that the industries that saw the greatest declines in regulatory restrictions enjoyed the greatest growth in compensation per worker. Specifically, we put together data on 70 industry sub-sectors. In addition to finding that the 2017–19 decline in regulatory restrictions came at a time when real compensation per worker grew by 3 percent, we found that each 1-percentage point decline in regulatory restrictions from 2017 to 2019 came with a 0.05-percentage-point increase in real-compensation growth per worker.
Is that big or small? Here’s another way to think about it: The Trump administration’s regulatory reforms have arguably accounted for roughly one-tenth of the overall growth in compensation per worker we saw over these years. Given that income grows for many reasons, ranging from technological progress to competitive forces, anything with a sizable, measurable impact is a big deal.
Today, policies that promote economic growth and innovation are especially important — particularly if very generous unemployment-insurance benefits continue to discourage reentry into the labor force after the next round of stimulus. Of course, some regulation is required for competitive markets and a just society. But where we draw the line matters.
Thanks to the Trump administration’s regulatory experiment, it’s becoming clearer that regulatory and tax reforms benefit the American worker — not just the rich. Continuing these reforms would help ensure that U.S. citizens are back on the path to economic recovery once the crisis ends.
Christos A. Makridis is a research assistant professor with Arizona State University’s W. P. Carey School of Business, a senior adviser at Gallup, and a non-resident fellow at Baylor University. Patrick A. McLaughlin is a senior research fellow and director of policy analytics with the Mercatus Center at George Mason University.