WAGE SUPPRESSION AND ITS EFFECTS

By by Brian T Lynch, MSW

It is hard to see how initially small dollar changes in wage compensation lead us to wage suppression, higher taxes, and a growing wealth gap. These problems in the USA economy today are best reflected in the fact that only a fraction of our working people make comfortable wages. 

Wage suppression in the US started about 50 years ago. That is when owners organized and stopped sharing company profits with their workers. Productivity raises ended and only cost of living raises were offered to workers. This has a yearly compounding effect as the gap between worker wages (total compensation) and growth (in GDP) widen. Growing national wealth leads to higher prices in addition to inflationary pressures. The gap between per capita GDP and wage compensation grow ever wider.  Essentially, the rich are get richer and the poor are getting poorer at an accelerated rate over time. 

This gap between GDP and wage compensation pushes wage earners down the economic ladder a little further each year. One result is that the number of families applying for government assistance is growing.  A growing reliance on public assistance expands government welfare budgets, which increases taxes.  Subsidizing working families is the equivalent of  subsidizing cheap labor. So, while businesses love cheap labor, they hate the higher taxes to support cheap labor. They lobby to cut the cost of government and lower taxes. The pressure to do this degrades all government services making the government appear less effective in the eyes of the public. 

At the same time, earnings for the well off rise more quickly and increase their consumption of more costly goods and services. This shift in consumption patterns distorts our economy. So, for one example, we get to the point where there is plenty of good housing for the well off, but no housing for the working poor. It isn’t even economically possible to build affordable housing for the poor working family income is too low to afford the amount of rent needed to cover the building costs. The result even more taxpayer subsidy to fund affordable housing. The, to keep tax subsidy down, towns are encouraged to allow builders to construct around 10 more expensive housing units to cover the loss on each low cost unit. 

This is how the playing field became tilted in favor of the rich. Clawing back a fair share of worker productivity pay raises from the wealthy won’t be easy. Very wealthy business owners/stock holders feel entitled to all the wealth their employees produce.

There are other side effects caused by decades of wage suppression, and many other surprising examples of its impacts. But let’s look instead at another large pocket of  resistance to wage growth; the financially happy folks making between $100,000 and $250,000 a year. If this is you, how much might you be making if wage composition rose in step with GDP growth, as it did for decades prior to 1975?

See the supporting data here: https://tinyurl.com/2uzt6hzt