The Cure for Wage Stagnation

A plethora of studies from around the world agree: Lower corporate tax rates equal higher wages.

The populist anger of this election cycle stems, at least in part, from consistently bad economic news. While the overall U.S. economy has been inching forward, most peoples’ lives have barely been improving at all. The average hourly wage for manufacturing workers was $20.83 in June 2006, in current dollars, according to Bureau of Labor Statistics data. Adjusted for inflation, it is only about a dollar higher today.

The dissatisfaction of working-class voters in both parties is understandable. Yet this presents a once in a lifetime policy opportunity. If the next president has a plan to increase wages that is based on well-documented and widely accepted empirical evidence, he should have little trouble finding bipartisan support. If politicians in Washington oppose the president’s ideas, he can, as Ronald Reagan did, go over their heads to the outraged voters.

Fortunately, such a plan exists. Regardless of who is elected in November, workers from both parties should unite and demand a cut in corporate tax rates. The economic theory behind this proposition is uncontroversial. More productive workers earn higher wages. Workers become more productive when they acquire better skills or have better tools. Lower corporate rates create the right incentives for firms to give workers better tools.

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