Tomorrow, the BLS will release the latest numbers on job creation and the labor market. Today, I’m going to take step back and provide some context for what we’ve seen so far this year, as we approach the 10^th anniversary of the beginning of the Great Recession. I’m also going to provide some perspective on the tax bill wending its way through Congress, in light of steady progress in the labor market over the last several years. The bottom line is that (1) contrary to recent economic commentary surrounding the proposed tax cuts in Congress, it is not clear that we have reached genuine full employment yet and significant slack may still remain in the labor market , but (2) if we continue to see solid payroll employment growth in the months to come, we should expect to see continued strong progress in labor force participation, particularly among prime-age workers, and in wage growth—even in the absence of any fiscal stimulus from tax cuts. Any claims that these tax cuts, if they pass, will lead to significant improvement in the labor market or in wages need to be viewed in the context of an already steadily improving economy.

In January 2017, we released our autopilot economy tracker, as a way to set down key benchmarks for the U.S. economy. Think of it as providing a gauge of whether changes to policy are leaving any discernible mark on the economy’s trajectory. We look at where several economic indicators were headed before the year started, and where they would be if those trends simply continued. Take, for example, the prime-age employment to population ratio (EPOP). In the figure below, you can see clearly the progress that has been made over the last several years, and the continuation of that trend through this year with no discernible uptick in the pace of recovery. Steady improvements in the prime-age EPOP since January have tracked our predictions of an economy on auto-pilot fairly well, and we should expect this trend to continue into next year.

The same goes for other indicators. Currently, the unemployment rate is beating expectations while nominal wage growth remains weaker than expected. However, as the economy continues to solidly add jobs, more would-be workers will be pulled back into the labor force. As that pool of potential workers who are currently jobless shrinks away, workers will have more bargaining power, which will translate into stronger wage growth. In turn, employers will begin investing more in labor-saving equipment and technology and we should see stronger productivity growth—which clears out even more room for wages to grow. This is the virtuous cycle we would like to see happen as the economy continues moving toward full employment, and there are clear signs that this process is beginning.

This analysis highlights the crucial importance of “high-pressure” labor markets for wage growth. An alternative visions says that it’s the tax rate faced by corporations that is key to wage growth. The evidence for this tax-centric view of wage growth is weak, as my colleague Josh Bivens explains. The crux of his argument is that (1) productivity and wage growth have been significantly greater in periods with higher corporate tax rates, (2) there is no robust relationship between post-tax profit rates and productivity-enhancing investments, and (3) productivity growth is only a necessary, not sufficient, condition for wage growth (as we’ve seen in the last four decades when typical compensation has growth significantly slower than the rate of productivity growth). Furthermore, corporate tax cuts do nothing in terms of giving American workers more leverage and bargaining power to acquire a significant share of those higher profits in the form of wages. In short, the push to cut corporate tax rates is a distraction from what can boost wages quickly: a spell of genuine full employment.

This spell of genuine full employment might not be that far away, so, it’s important that we recognize that stronger wage growth is on the horizon anyhow, and if these regressive tax cuts are passed, we cannot attribute that stronger wage growth and improvements in the labor market in general to said tax cuts.