There has been a lot of talk about how the minimum wage has not kept pace with the expanding economy of the United States. Currently at $7.25/hour, the minimum wage would be at $16.50 had it kept pace with the growth of the economy. Dean Baker makes a good explanation of how that has been by design, (It's a feature not a bug!), here.
It's not just minimum wage workers who have not kept pace with the economy. While inflation-adjusted ("real") household income had been increasing almost every year from 1945 to 1999, it has since been flat and even decreased recently. U.S. median household income fell from $51,144 in 2010 to $50,502 in 2011. Extreme poverty in the United States, meaning households living on less than $2 per day before government benefits, doubled from 1996 to 1.5 million households in 2011, including 2.8 million children.
Just the facts, ma'am:
1. There are 980,000 min wage workers in the US, (from Wiki)..
2. $7.25/hour is current min wage
3. $16.50/hour would be min wage if it had kept pace with the rest of the economy
4. The difference in lost pay for minimum wage workers is $9.25/hour
5. There are 40 hrs work/week = $370/week/worker (the total increase in weekly pay for a minimum wage worker had the minimum wage kept pace with the economy).
6. $370 X 980,000 minimum wage workers in the US = $362,000,000/week, (the total difference in cost that would have been incurred in the labor market if the minimum wage had kept pace with the economy.
7. $362,000,000/week X 52 weeks per year = $18.9 Billion, (the total yearly cost had the minimum wage kept pace with the economy.
While worker compensation has not kept pace with the economy, the topography of executive compensation has grown to elevations that could not have been imagined not so long ago. Executive pay has increased by 725%, or 127 times faster than worker pay over the past 30 years.
Most of the major changes in executive compensation occurred during and after the 1980s when the financialization of America began when wunder kid Michael Milken figured out that American industry was worth more on paper anyway when it was broken up. Milken's income set a new record in the world when he exceeded $1 Billion in a four year period back in the day. Milken served 2 years of a 6 year sentence, paid a $600 Million fine, and is today ranked the 488th richest person in the world with a net worth of around $2 Billion. Those junk bonds Milken peddled look like kids play next to the opacity of the financial derivative market we have today. In 1994, Nafta made it easy to export jobs across national borders which didn't help bolster workers pay. Executive compensation really accelerated when the Glass-Steagall Act was repealed, (1999) and CEOs compensation in the financial sector shot up again when the Commodity Futures Modernization Act of 2000, more or less exempted financial derivatives from scrutiny and regulation. Executive compensation has dropped on average since the financial crisis in 2008, but don't worry about whether the CEOs will be able to send their kids off to the right prep school, or be able to buy that million dollar yacht just yet.
Hedge fund managers are the most heavily compensated positions in our economy today. They're all about managing risk if you believe the press releases. If you're of a more cynical bent you might think they're all about creating betting vehicles for those members and institutions in our society that can't find a casino in Las Vegas or the world big enough to backstop the size of the bets they are likely to place. For that you need a sovereign nation willing to put its citizens health, well being, and prosperity on the line to guarantee such big bets. No hedge fund manager made more in 2011 than Raymond Dalio, the founder of Bridgewater Associates. He made an estimated $3 billion in 2011, (which happened to be an off year for hedge funds). Two other money men made $2 billion each. In total, the top 40 highest-earning hedge fund managers made a combined $13.2 billion, with the lowest earning managers on our list making $40 million. To qualify for the top 10, a hedge fund manager needed to make more than $200 million. This is what a very bad year in the hedge fund business looks like.
Here in this one part of the financial sector we have 40 individuals whose annual compensation equalled almost 70% of the amount it would cost to bring minimum wage earners up to the level of income they would have received had the minimum wage system been designed to keep pace with the economy.
That is just executive compensation in hedge funds, a part of the financial sector that has grown significantly over the past 30 years. Factor in the executive compensation packages of the rest of our corporations, and it will become apparent just why the minimum wage as well as middle class incomes have stagnated or lost ground over these past 30 years. Consider also that increases to workers pay at the lower end of the compensation spectrum are generally spent buying goods and services that improve not just the lives of those workers, but are returned magnified throughout the economy as those purchases help create new jobs. Contrast that with executive compensation packages in the millions of dollars, where at best that excess income means that these overlords create a couple of jobs for their brokers, the local Ferrari dealership, or personal fitness trainers. I'm not suggesting that corporate executives should be compensated at the same rate as workers. We should work to see our policies return to something that would help ensure a lively economy in which all those who work for a living can expect to earn sufficient funds to lead a life free of undue financial hardship, and financial inequality is not a design feature of those public policies.
As Mr. Baker says, this is paradigm that is by design, and is not a result of some flaw in the reasoning of our policy makers. Our elected officials are and have been in the full employ of the masters of the universe who play at dominating a small sector of this pale blue dot we call Earth.
Do watch the video if you have never seen it. It's one of my personal favorites.