Negative Economic Impacts on the Middle Class

Growing up in a middle-class family, my parents worked constantly but saw little return for their hard work. It is common to ask why workers, especially middle-class employees, are not doing better in today’s economy. There are several answers to this question, but some of the most relevant include the fact that labor unions are becoming weaker, companies can find cheap labor abroad, the rise of large companies with small labor forces, and most significant of them all - the use of company buybacks and dividends. While employee wages have seen subtle increases in recent years, inflation has also increased making a dollar less valuable today than it was forty years ago. With that being said, what can be done to increase wages and continue to keep company profits high?

The current labor market is extremely strong and continues to grow. Drew DeSilver states in his article For Most U.S. Workers, Real Wages Have Barely Budged in Decades, “ U.S. unemployment is as low as it’s been in nearly two decades (3.9% as of July) and the nation’s private-sector employers have been adding jobs for 101 straight months – 19.5 million since the Great Recession-related cuts finally abated in early 2010, and 1.5 million just since the beginning of the year.” While this is great news, wage growth has been lagging far behind profit growth despite the decline in unemployment. A real average wage forty years ago has the same purchasing power as a real average wage today, and unfortunately, most of the growth in wages is seen by only the highest-paid employees who have experienced a 15.7% increase in wages since 2000 (DeSilver 2).

As a visual for how little median weekly wages have changed after adjusting numbers for inflation, a weekly salary of $232 in 1979 has the same value as $840 does today. (“Usual Weekly” 1). Wage growth needs to be seen across the board of employees, not only the top 10th percentile. Large companies, such as Walmart, have such high profits and have the ability to distribute some of their profits into their employees’ pockets (who are likely to put their money right back into the economy and more specifically probably right back into the individual company). While profit is vital for the survival of a company, the focus needs to be taken away from solely maximizing profits and shifted towards maximizing value to its customers, employees, and society as a whole.

Donald Trump likes to claim that he has transformed the economy into the best it's ever been. This, however, is not accurate for all citizens of the United States. Even though the unemployment rate is at an all-time low, it was decreasing at a much faster rate under Obama’s administration than it currently is under Trump’s - but he is selfishly taking all the credit. Wage growth is important to note here because it had a steady growth pattern from 2014 to 2017 up until it began to slow down in 2018 during Trump’s presidency (Madrick 2-8). One of the most important facts surrounding Trump’s false claims is that despite his large tax cuts on the corporate level, business investment is not unprecedentedly growing. So why, given all of the comparisons throughout the past few years, is Trump claiming that he has built the economy to be the “best ever”? Possibly because some individuals, mainly those that are seen in the top 10th percentile in terms of wages, are too ignorant to distribute some of this credit to the previous administrations like Obama’s.

Employees that see little to no wage gain also pay higher taxes than the wealthiest individuals. To be specific, “the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group” (Leonhardt 1). The wealthy tend to favor lower taxes, who would not, but have the mindset that raising taxes on the rich is the equivalent of a punishment. Raising taxes on the wealthy is not about creating a punishment, it's about establishing an economy that benefits the entirety of America - not only the upper-class. Emmanuel Saez and Gabriel Zucman, authors of “The Triumph of Injustice”, developed a brilliant tax code in their book that mentions the possibilities that would arise if tax rates on the “richest 1 percent would roughly double, to about 60 percent. The tax increases would bring in about  $750 billion a year, or 4 percent of G.D.P.” This $750 billion could fun several programs that would, in turn, boost economic growth.

It has been over 50 years since people in the United States have seen a real wage increase. The lower and middle classes are the only ones not seeing this wage gain, companies are making major profits but since 1978 CEO pay is 90 times what it used to be and in that same timeframe average workers have seen a wage gain of barley 12% (Mishel 1). Companies are now participating in a popular trend of stock buybacks, which was once illegal. Companies have a choice of how they distribute their profits, those that chose to participate in this trend of corporate buybacks, as a result, are taking money away from employee wages as well as possible funding for research development. In the sense of time - in the last 15 years, a total of about 94% of company profits have been used towards buybacks and dividends (Stewart 1).

Only the wealthy have experienced growth recently, with low tax rates and higher wages. As an economy, we need to put an end to this inequality before another Great Depression occurs. Additionally, there needs to be an end to open-market buybacks that negatively impact the  majority of employed Americans and the processes that determine executive compensation needs to be changed completely. Firms need to generate profits in order to be successful, but it is equally important to make sure profits are distributed fairly across the board. If Congress were to enforce more defined and strict regulations involving company buybacks and dividends, there is a high likelihood that profits would get distributed elsewhere such as employee wages, developmental research, and even funding for higher education. This would ensure that not only are firms still seeing major profits, but employees across the spectrum are also seeing wage gains that they deserve and the economy would prosper as a result.

Citations

• DeSilver, Drew. “For Most Americans, Real Wages Have Barely Budged for Decades.” Pew Research Center, Pew Research Center, 7 Aug. 2018, www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/.
• Leonhardt, David, et al. “David Leonhardt: The Rich Really Do Pay Less Taxes than You Do.” The Salt Lake Tribune, www.sltrib.com/opinion/commentary/2019/10/07/david-leonhardt-rich/.
• Madrick, Jeff, et al. “Trump Claims the Economy Is the Best Ever - These 11 Facts Tell a Different Story.” The Century Foundation, 5 Nov, 2018, tcf.org/content/commentary/trump-claims-economy-best-ever-11-facts-tell-different-story/.
• Mishel, Lawrence, and Julia Wolfe. “CEO Compensation Has Grown 940% since 1978: Typical Worker Compensation Has Risen Only 12% during That Time.” Economic Policy Institute, www.epi.org/publication/ceo-compensation-2018/.
• Stewart, Emily. “Stock Buybacks, Explained.” Vox, Vox, 5 Aug. 2018, www.vox.com/2018/8/2/17639762/stock-buybacks-tax-cuts-trump-republicans.
• “Usual Weekly Earnings Summary.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, 17 Jan. 2020, www.bls.gov/news.release/wkyeng.nr0.htm