Let’s speak at a macro level. Consumers drive 70% of GDP. Earners in the top 1% of income have received 93% of the income growth since the depths of the Great Recession (Bloomberg). A perhaps surprising fact about those high earners. They only consume 21% of their income (Tax Policy Center).
Despite the slow growth of GDP, 93% of the profits generated is taken by the highest income earners. Since they spend but 21% of their income on consumption, most of the profit growth is removed from consumption.
Some people argue that paying CEOs and others large salaries for their significant contributions to corporate wealth is just supply and demand. I won’t argue here about the lack of competition and the cozy relationships on compensation boards which undercuts the requirements for free market supply and demand. I just want to highlight the impact.
The people who spend most of their income, the bulk of consumers, are not getting wage growth sufficient to support a more rapidly growing economy, which would lead to more acceptable unemployment levels.
Now some will argue that the Top 1% are funding business investment which will lead to GDP growth – and there is some truth to that, yet the problem remains.
With 93% of income growth being taken by the Top 1%, the salaries of workers and lower level managers is barely growing, so the nation’s GDP barely grows.
Growth for the American economy requires salary growth for American workers.