Subscribe

The economy is rigged against workers. Or is it?

Signs of progress

The picture since the Great Recession has been of economic gains flowing to top income brackets. Now, some rebalancing has occurred, as a better job market and minimum-wage hikes raise incomes for average families.

  • close
    Students and other supporters protest on the University of Washington campus in Seattle, in support of raising the minimum wage for campus workers to $15 an hour last year. Workers have gained a larger share of the economic pie in recent years.
    Ted S. Warren/AP/File
    View Caption
  • About video ads
    View Caption
of

Since early on in the economic recovery, the dominant narrative has been one of growing inequity.

Corporate profits have skyrocketed as wages have stagnated, widening the gap between wealthy shareholders and everyone else. Movements from Occupy Wall Street and Fight for $15 to the Donald Trump and Bernie Sanders presidential campaigns have fed off the frustrations of typical Americans who feel they have been left behind.

All of that is still true, but lately there’s a twist: Typical Americans are starting to catch up.

US workers’ stake in the economy has been growing for the past few years, and the share of corporations has been shrinking, according to an analysis of Commerce Department data by The New York Times’ Upshot blog. At the beginning of 2013, pay and benefits for workers accounted for 61 percent of the national income (the total amount of money earned in the United States in a given year). By the end of 2015, it was up to 62.9 percent, or an extra $251 billion per year.

Corporate profits, meanwhile, have lost ground, accounting for 14.2 percent of national income in mid-2014 and falling to 12.1 percent in late 2015.

“It’s early, and the reversal may not last,” Neil Irwin writes for the Times. “But the numbers are quite clear that in the last couple of years workers have claimed a bigger piece of the economic pie and shareholders a smaller one. The evidence available so far in 2016 — steady growth in wages and weak earnings for publicly traded companies —suggests that the reversal is continuing this year.”

Such rebalancing is seen by many as a welcome trend, at a time when two-thirds of Americans see the rich-poor gap as "a problem that needs to be addressed now," according to one CBS News/New York Times poll last year. And it's been occurring against a backdrop of growth in the overall economy, albeit not as fast as many would like. 

There’s plenty of that evidence to go around, bolstering the notion that, at least for now, Main Street is outpacing Wall Street. That hasn't been the case for most of the recovery, which began in 2009. Soaring stock prices have been a boon for those wealthy enough to have a significant stake in equities, leaving behind middle- and low-income Americans who tend to own fewer stocks.

2016, however, hasn’t been as kind to corporations or their stakeholders. The Dow Jones Industrial Average lost 5.5 percent of its value  during the month of January. That volatility, along with talk of possible recession risks, was a reminder of how a dive in profits or stock prices can impair economic growth – and the job market for rich and poor alike. Stocks have rebounded in recent weeks, but the Standard & Poor's 500 stock index isn't as high now as it was a year ago. 

Part of the reason for the lagging corporate profits is the travails of one industry, energy. But it's also that consumers, who are better off than they were a few years ago, aren't putting their extra cash back into the economy, says David Joy, an economist and market strategist for Ameriprise Financial. 

"Rising employment, reduced debt burdens, and lower energy costs have left consumers in a strong financial position," he writes in an e-mail. "But consumer spending has been modest, and the savings rate has climbed. This suggests that consumers have turned more cautious in the wake of the financial crisis. In the long run, this bodes well for the prospect of extending the economic recovery. In the short run, however, it means that economic growth will be less robust, as corporate revenues slow."

Indeed, workers are gaining leverage as joblessness goes down and more demand for workers drives up wages. On average, the economy has added about 209,000 jobs per month since the beginning of 2016, according to the Labor Department. Worker pay, which has long been the stickiest spot of the recovery, is finally showing signs of life, both from a data standpoint and in the form of key policy developments. Wages and salaries have ticked up almost a full percentage point over the past three months according to the Commerce Department. Economists largely credit the jump to minimum wage hikes that took effect in several states Jan. 1. 

For those a step or two higher on the economic ladder, relief is coming as well. Sometime this summer, the Labor Department will tweak rules regulating overtime pay, making it available to previously exempt salaried employees and managers. The annual pay threshold under which workers can qualify will more than double, from  $23,660 to somewhere around $50,000 (final figures have not been released). The Labor Department estimates that the changes will affect 5 million workers in its first year of implementation.

On an anecdotal level, there are individual flashes of businesses placing a higher premium on worker treatment. Last week, the chief executive of Chobani extended ownership stakes to the yogurt company’s 2,000 full-time employees, a move that could make some of them millionaires.

All of these are incremental improvements, and the worker share of national income does include highly paid workers like executives as well – meaning that on its own, it could be read as yet another instance of the wealthiest earners reaping outsize benefits while making the overall economic picture look rosier than it actually is for the vast majority of the country. Between 2009 and 2013, the top 1 percent of earners netted an 11 percent gain in disposable income, which stagnated or even declined for the rest of the workforce through those first five years of the recovery.  

But "paired with other evidence, it doesn’t look as if this is solely a phenomenon of the highest-paid workers making more,” Mr. Irwin writes. "For example, average hourly earnings for nonmanagerial private sector workers rose 2.56 percent in 2015 in a year of very low inflation. That number was only 1.69 percent in 2012, when inflation was higher."

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK