10.21.20

5 ways the election could impact jobs and the economy

Perhaps the biggest issue facing elected officials will be how to lead the U.S. out of the pandemic-caused downturn.

The perceived strength or weakness of the U.S. economy is often a key issue for voters in national elections, and 2020 figures to be no different. In an August survey by Pew Research Center, 79% of registered voters cited the economy as “very important” to their upcoming vote1—outdistancing the second-place finisher, healthcare, by 11 percentage points.
 
With the U.S. economy thrown into tumult because of the coronavirus pandemic, which shut down businesses large and small, the winner of the election will likely look to find a way to provide continued relief to businesses and individuals. That’s just one of several economic and job-related issues that may be affected by the election, however.
 
Here are five areas where the election may have an impact.

1. Pandemic reaction and economic recovery

The ongoing nature of the pandemic has some economists concerned about a “W-shaped” recession, where there’s a drop, a small bounce back, and then another drop before recovery finally starts. Should President Donald Trump be re-elected and Republicans maintain control of the Senate, it is likely that economic recovery efforts will focus on providing additional relief to businesses, similar to the Paycheck Protection Program.
 
If the Democrats gain control of the White House and Senate, expect a more robust Federal response to economic recovery. In order to get businesses back open as safely as possible, Democratic nominee and former Vice President Joe Biden has proposed guaranteed COVID testing and protective equipment for all workers. Additional support targeted for small businesses and expanded unemployment benefits are also likely.

The U.S. has two unemployment crises

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Bloomberg, Bureau of Labor Statistics

2. Trade

President Trump has made no secret of his belief that tariffs are a way to protect American jobs. In part due to the tariffs, especially those on China, the U.S. trade deficit improved in 2019. Exports and imports both dropped, however, meaning U.S. firms were selling less to overseas customers.
 
A Biden victory would likely result in more normalized trade relations, and he has said he would work with allies to improve trade deals with China instead of operating in isolation. Biden has also proposed improving the competitiveness of U.S. industries by investing in infrastructure and research and development as a way to help reduce the trade deficit.

U.S. goods and services trade deficit has started to shrink

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Federal Reserve Bank of St. Louis

3. Manufacturing and offshoring

While manufacturing’s role in the overall economy has decreased over the years, it’s still a key issue. The coronavirus pandemic has had an especially negative impact on manufacturing employment, wiping out a significant portion of the increase in manufacturing employment since 2010. One of the main subplots of manufacturing is always companies moving jobs overseas. President Trump campaigned heavily in 2016 on bringing manufacturing back to the U.S. In August 2020, he also proposed “Made in America” tax credits for manufacturers who restore domestic operations with penalties on federal contracts for companies that outsource work.
 
Former Vice President Biden has proposed tightening rules on corporate inversions to discourage companies from moving jobs overseas, as well as a 10% surtax on the corporate tax for profits of manufactured goods and services produced by American companies overseas and sold back to the U.S. market. He has also proposed a 10% tax credit for companies for certain investments in domestic production.

Manufacturing employment is down 740,000 jobs since Feb. 2020 amid the coronavirus crisis

U.S. manufacturing employment (thousands), Jan 2010 - Jul 2020

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EPI analysis of Bureau of Labor Statistics (BLS) Current Unemployment Statistics (CES) data series (CES3000000001)

4. Federal spending and Federal Reserve policy

When it comes to federal spending, history has shown that divided government leads to periods of lower spending, which can hurt GDP. A Biden presidency, combined with Democratic control of the Senate, would likely result in a larger rise in federal spending to fund more fiscal stimulus, healthcare, and environmental policy reforms. On the revenue side, Democrats have proposed tax increases on the wealthiest Americans while protecting the working class and middle class from additional taxes. President Trump has supported targeted Federal spending for economic growth, to include a second round of tax cuts for businesses, though details are scarce.   
 
No matter which nominee wins the presidency, federal spending may be necessary in order to help with coronavirus relief. In terms of federal monetary policy, the Federal Reserve has been lowering the federal funds rate in an attempt to help the economy. There are currently two open spots on the Federal Reserve Board of Governors, so the president will have the opportunity, if he can get nominees approved, to have a significant role in shaping the future of the board.

The Fed is now targeting 2% average inflation

U.S. manufacturing employment (thousands), Jan 2010 - Jul 2020

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Bloomberg, Bureau of Economic Analysis

5. Benefits for workers

Former Vice President Biden has said he is in favor of increasing the federal minimum wage to $15 per hour, and would also increase the maximum threshold for overtime pay from $684 per week to $913 per week, which was initially proposed by President Barack Obama before he left office. The Trump Administration did raise that threshold from $455, but in increasing it to $684 per week, also eliminated any automatic adjustments to that amount.
 
The Biden campaign has supported the FAMILY Act and Healthy Families Act. The Healthy Families Act would give workers seven days of paid sick leave. The FAMILY Act would provide up to 12 weeks of paid family or medical leave to employees, essentially an expansion of the Federal Employee Paid Leave Act previously passed by Trump, which provided most federal employees up to 12 weeks of paid parental leave.

“Skills gap” wage growth closure pre-2020

U.S. manufacturing employment (thousands), Jan 2010 - Jul 2020

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Bloomberg, Department of Labor

The economy relies on more than politics

The election’s results could also favor employees in certain industries over others, depending on the policies that the president and his party support. For example, within the energy sector, a Biden presidency would likely boost renewable energy investment, which could lead to more jobs in that field, whereas a continued Trump administration would likely focus on additional oil and gas drilling and coal production, helping those parts of the energy industry.
 
For investors, it’s important to remember that the economy is not only influenced by federal policy, but also by worldwide events and other factors. That’s why no matter the results of the election, it’s prudent to consider your long-term plan, as trends that have been in force for some time will likely continue. 

1 https://www.pewresearch.org/politics/2020/08/13/important-issues-in-the-2020-election/

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