Creative destruction. Fierce competition. Companies rising and falling. Startups dethroning the established giants.

The dynamism of capitalism is its strength. Companies need to provide customers with what they want, at high quality, and low price. If they don’t, they go out of business. Even if they do, they need to worry that someone new will innovate and do it better.

The result of this breakneck competition—and this is the beauty of capitalism—is not floods of profits, but the opposite: narrow profit margins, with the surplus flowing to the consumer.

Innovation, quality, disposable income, and opportunity are the fruits, and they in turn create more benefits. The alternative—stodgy and safe companies, protected by bailouts and barriers to entry—yields stagnation instead.

But there’s a different story to be told, a new study suggests. And it echoes some of the lessons this election drove home. The free-flowing economy may maximize the wealth of the economy as a whole, but it could leave some people worse off, namely the low-skilled worker.

When companies’ earnings are more stable, the new study by labor economist Michael Strain at American Enterprise Institute labor economist Michael Strain finds, workers enjoy more stable wages. Less stable earnings yield less stable earnings, Strain found, especially for low-income workers.

While unstable corporate earnings sounds good in the abstract—it means a dynamic economy—unstable individual earnings for low-income families isn’t a good thing.

“Earnings instability lowers household welfare,” Strain writes, “because risk averse households prefer stable to unstable earnings, even if average earnings are the same.” In English, that means fluctuating earnings are more stressful, because the risk of a year of low earnings is scarier for many than the promise of a good year is enticing.

If you’re wealthy, fluctuating income is more manageable. It’s easier to save for a rainy day when your good days are flush with cash. And higher-income individuals tend to be financially savvier and have more access to professional financial advice.

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Strain’s research asked the question “Are workers who are employed by volatile firms paid volatile earnings?” He found, yes. More importantly, “the effect is much stronger for low-earning workers than it is for high-earning workers.” That is when a company’s earnings fluctuate, it passes the turbulence on to the low guy on the totem pole. Maybe that’s because hourly workers get their hours trimmed when a company has a downturn.

Wage instability for low income workers is bad for those families, but it also has a societal cost—if you think inequality is a bad thing. Economists Peter Gottschalk and Robert Moffitt found last decade that the increase in income fluctuations explains about one third of the increase of inequality from 1970 to 2004.

So a story of rising inequality is, largely, the story of less stable incomes. Throw in the family-level problems of inconsistent wages, and suddenly the free-market advocate faces a problem.

We’re not supposed to want firms and their profits to be stable. That’s what the airlines enjoyed under regulation, and it meant no innovation, stultified competition, and cushy profit margins. “Protectionism” is a bad word among free-market types because companies aren’t supposed to be protected from market forces.

But exposing a low-income family to the same gales hardly seems humane. While we may not mind if Kodak or Sears has to fight to stay above water, we don’t want Joe Sixpack to be wondering if he’ll make the rent next month. The old days where the Big Three automakers didn’t have to compete with Japan, and the airlines didn’t compete with one another, and IBM and Sears were fortresses—those may have been, in a sense, good old days.

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So what’s good for the economy as a whole—fierce competition and few barriers to entry—may be bad for the little guy.

This is a parallel, or perhaps a microcosm, of the economic issues at the heart of Trump’s rise. Free trade and fairly open borders are good for the economy. But rising GDP and cheaper goods at Wal-Mart doesn’t mean a lot to the laid-off factory worker, or the now-grown son of the mill worker still living in the shadow of the moth-balled steel mill in the Monongahela Valley.

This is the treacherous terrain the GOP now has to traverse. Can the party, after Trump’s win, still fight for the free-market policies that harm the working-class guy with no college education? Will they scrap the idea of free enterprise, thus harming the economy, to help Joe Sixpack?

Being a conservative in the era of Trump was never going to be easy. This new study makes it harder.

Timothy P. Carney, the Washington Examiner’s senior political columnist, can be contacted at His column appears Tuesday and Thursday nights on

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