Trump's Full Employment Challenge: Can He Keep the Labor Market Humming?

As President-elect Donald Trump prepares to take office for the second time later this month, he inherits a labor market at full employment. The question on everyone's mind is: can he keep it there? The answer lies in understanding the factors that contributed to this achievement and the challenges that lie ahead.



The labor market has been on a roll, with job growth and low unemployment rates. In 2019, the unemployment rate fell to a 50-year low of 3.5%, and the economy added 2.1 million jobs (Bureau of Labor Statistics, 2020). This strong performance can be attributed to several factors, including the Trump administration's policies and the robust economy inherited from the Obama administration.

One of the Trump administration's signature economic policies is the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA lowered corporate and individual tax rates, aiming to boost economic expansion and stimulate consumer spending. The corporate tax rate was reduced from 35% to 21%, and individual tax rates were reshuffled. The act also introduced a 20% deduction for certain pass-through business income and shifted to a territorial tax system. Proponents argue that these changes helped the economy expand and increased corporate profits. However, critics point out that the benefits were unequally distributed, favoring mainly rich individuals and large corporations (Source: "Trumponomics explained").

Another key factor in the Trump administration's strategy to maintain full employment is deregulation. The administration aimed to reduce "excessive government regulation" to incentivize economic growth. One prominent example is Executive Order 13771, which required federal agencies to eliminate two regulations for every new one introduced. This policy aimed to reduce the regulatory burden on businesses, potentially leading to job creation and economic growth. However, the effectiveness of this policy is debated, as some argue that it may have led to environmental and worker safety concerns (Source: "Trumponomics explained").

However, maintaining full employment in the coming term will not be without challenges. The Trump administration's approach to immigration and trade policies has had significant impacts on the labor market, with potential challenges arising from these policies in maintaining full employment.



The Trump administration's restrictive immigration policies, such as the travel ban and the reduction in refugee admissions, have led to a decrease in the number of foreign-born workers entering the U.S. labor market. This has created labor shortages in certain sectors, particularly in healthcare and agriculture. For instance, the Migration Policy Institute estimates that immigrants accounted for nearly 18% of health care workers in 2021. If the Trump administration continues or intensifies these policies, it could exacerbate labor shortages in sectors that rely heavily on immigrant labor, leading to increased wages and inflation, as employers compete for a smaller pool of workers. Additionally, mass deportations could further shrink the labor force, potentially leading to higher unemployment rates.

The Trump administration's trade policies, including tariffs and renegotiated trade agreements, have led to job losses and gains in different sectors. For example, the U.S.-China trade war resulted in job losses in industries like manufacturing and agriculture, while the U.S.-Mexico-Canada Agreement (USMCA) led to job gains in sectors like automotive and manufacturing. If the Trump administration continues or escalates these policies, it could lead to further disruptions in the labor market, with potential job losses in affected sectors.

In conclusion, President-elect Donald Trump inherits a labor market at full employment, thanks to the Trump administration's policies and the robust economy inherited from the Obama administration. However, maintaining full employment in the coming term will not be without challenges, as the Trump administration's approach to immigration and trade policies has had significant impacts on the labor market. To keep the labor market at full employment, the Trump administration must address these challenges and implement policies that support economic growth and job creation.