11

Delivering on Promises to the Middle Class

MILAN – US President Donald Trump owes his electoral victory largely to the older white middle- and working-class voters who have missed out on many of the benefits of the economic-growth patterns of the last three decades. Yet his administration is preparing to pursue an economic program that, while positive in some respects, will not deliver the reversal of economic fortune his key constituency was promised.

Trump gave voice to a group of voters who had long faced worsening job prospects and stagnant or even declining real incomes – trends that have accelerated since 2000. As the number of middle-class jobs fell, the middle-income group shrank, exacerbating income polarization. This phenomenon, while particularly severe in the United States and the United Kingdom, can be seen in various forms throughout the developed world.

The economic challenges facing developed-country middle classes are largely the result of two factors: the rapid loss of white- and blue-collar routine jobs to automation, and the shift of middle and lower value-added jobs to countries with lower labor costs. The latter pattern depressed income and wage growth not only in the tradable sector directly, but also in the non-tradable service sectors, owing to the spillover of displaced labor.

The result was surplus labor conditions in the middle- and lower-middle-income ranges, not dissimilar to the surplus labor in early-stage developing countries, where it suppresses income growth (for a period of time) even as the economy expands. A decline in the bargaining power of labor and a falling real minimum wage may have also contributed to income polarization, though these are probably secondary factors.