Aggregate Effects of the Top 1% Earners

Let’s speak about the 2013 economy 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 will only spend on GDP goods 21% of their income (Tax Policy Center).

Chart showing the recovery in corporate profits since the Great Recession

By the end of 2013, corporate profits had gained 39% above pre-2008 levels and more than doubled over Great Recession profit lows. How have GDP and unemployment fared?

There was slow growth in GDP yet, of the profits generated, 93% has been 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. That is a big reason that GDP hasn’t grown faster.

Low recovery of GDP despite corporate profit rebound.

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 undercut the requirement for free market supply and demand, let me just highlight the impact.

US Unemployment rate in aftermath of the Great Recession

The people who spend most of their income—most workers—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 consumption problem remains.

With 93% of income growth being taken by the Top 1%, the salaries of workers and lower level managers are barely growing, so the nation’s GDP barely grows.

Growth for the American economy requires salary growth for American workers.

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