Why We Need A Raise - How Wall Street and Main Street Have Diverged

by Brian T. Lynch, MSW

I've been saying it for years. Bernie Sanders, who is running for President, has apparently been saying it for decades now... American Workers Needs a Raise! 

The graphic above speaks louder than words. When I first posted a similar version of this over two years ago a leader in the Occupy Movement said of it... "This is why we occupy!"  

The growing gap between the economy on Main Street and Wall Street, a declining standard of living, the shrinking middle class, the rise in the need for government subsidized supplemental income and social services for so many, the sense that our children won't be better off than we are today, all of this has a common origin. They are all connected! They are all the result of wage stagnation (or suppression as I see it.)  

In the period of just a few short years, beginning in 1973, employers stopped giving workers productivity raises. Since then, almost all the raises workers have received were merely inflation adjustments, not rewards for their growing productivity. All those rewards suddenly went to those at the top. The effects of this on the economy are compounded over time. Forty years of this nonsense has brought us most of the economic ills we experience today. 

The fact that "growing the economy" no longer results in rising worker compensation has been lost on politicians in both political parties. In fact, almost every policy initiative to "grow the economy" has made matters worse. It has often meant slashing taxes for the wealthy (trickle down theory), granting tax breaks for big businesses, and creating tax loopholes for the "job creators" so they can do their thing. Well, their thing is to get substantially wealthier. Almost all new wealth has gone to the top while the wealthy hide more and more of their assets in tax havens.  State and local governments can hardly manage to patch up the potholes on our streets because of the combination of tax breaks for businesses and subsidies for the expanding numbers of working poor families.  

The Economic Policy Institute has released yet another report on why most of us are not feeling the love from the Wall Street economy. I have take liberties with their findings to condense them a bit so their impact is clearer. For the full report, go to:

Understanding the Historic Divergence Between Productivity and a Typical Worker’s PayWhy It Matters and Why It’s Real

By Josh Bivens and Lawrence Mishel | September 2, 2015

Here is my summary of their summary of findings: 

§  From the end of World War II until the mid-70's, inflation-adjusted hourly wages and benefits rose in step with increases in our growing hourly GDP, which measures our economy-wide productivity. This parity between wages and productivity created the middle class.

§  Since  around 1973, hourly compensation has not risen with productivity grown. In fact it almost stopped very abruptly. Net productivity grew 72% between 1973 and 2014 while inflation-adjusted hourly compensation for most of us rose just 8.7%.

§  America's Net productivity grew 1.33% annually between 1973 and 2014 while hourly worker compensation grew at just 0.20%.   Since 2000, the gap between productivity and pay has risen even faster ( 21.6% from 2000 to 2014 vs. just 1.8 % rise in inflation-adjusted compensation).

§  Since 2000, more than 80 % of the gap between a typical worker’s pay growth and overall net productivity growth has been driven by rising inequality. Between 1973 and 2014, rising inequality explains over two-thirds of the gap between productivity and worker compensation.

§  If the hourly pay of typical American workers had kept pace with rising productivity since the 1970's, there would have been no rise in income inequality during that period.

§  Our rising productivity in recent decades provided the potential for substantial growth in wages for most American workers but this new wealth went instead to the riches segment of society.

§  Policies to encourage wage growth must not only encourage productivity growth (the "we must grow our economy" argument) but also restore the link between economic growth wage compensation. Just growing the economy by itself doesn't fix the economy for most working Americans.

§  Finally, economic evidence shows that the rising gap between productivity and pay is unrelated to the typical worker’s individual productivity, which has also been rising.