The Expanding Wealth Gap in America; Who has it effected, what does it mean?

Since 1970, the GDP in the United States of America has grown from 1.073 trillion to 21.43 trillion in 2019. During that time of immense wealth growth, the vast majority of it has been accumulated by a very small percentage of the population. Since 1979, the bottom 90% of the population have only seen their pay increase 15%, while the top 1% has seen it increase 138%. This happened despite workers productivity being up 74.4% since 1973; meaning, the average worker produced more goods but saw no such increase in compensation. While those in the top 5% saw a 41% growth in their wages, those in the middle class saw just a 6% growth and those in the low wage class – the bottom 10% - actually saw their wages decline 5%. (Mishel, Gould and Bivens). This entire issue has been driven by greed at the top and is exemplified by the growth of CEO wages. Since 1978, CEO wages have risen 940%, while the average worker has only seen a 12% growth in wages (Mishel and Wolfe). This absorption of wealth by a very few has led to the degradation of the average American worker, and their impact on a company. With the rise of companies like Uber, and other contract-based positions, the work and efforts put forth by unions has been slowly chipped away.

This economic inequality has left us with a very divided world, and as the divide continues to grow and be exasperated by this pandemic and other hardships, time will tell what the average worker will do to regain their power and voice in the work place. Despite all the evidence above, studies say that we “may under-estimate the level and rise of inequality, as financial globalization makes it increasingly hard to measure wealth at the top” (Zucman 2). What all this has led to is; the average life expectancy of an American has stagnated – and for some classes it has declined - and the percentage of American’s living paycheck to paycheck is higher than it’s ever been. The wealth gap has exasperated the nations racial and classist divides, and without a change to the laws that have made things such as corporate theft legally accepted – a crime in which no person is held accountable – this wealth gap will only continue to grow and chip away at the quality of life for the average American. With this paper I will help the reader identify what government policies have assisted in this slow degradation of workers rights, where, how and by whom the masses money is being siphoned, and what we can do to halt the coming of the Gilded Age 2.0 before the damage becomes too overwhelming.

At the end of the 1970’s, and with the Presidential Election of Ronald Reagan in 1981, the economy began to make a subtle but noticeable shift away from the pro-worker roots that had taken hold since the 1940’s with the economic move to what Ronald Raegan called “Trickle Down Theory.” The theory that if you lowered taxes and regulations for corporations, and promoted profit over all else, that over time those corporations would grow, and those vast amounts of wealth would “trickle down” to the workers (Pearl). This can be visualized in two charts below:

In the above, you see a steady rise of income for all income levels from 1945 until 1980; immediately following the election of Reagan, you see the dip and then stagnation of the wages for the median and bottom 20th percentile, while the 95th percentile continues forward with significant growth. Another way to visualize this is as follows:

As shown in the chart, while there was a move towards the top 10% prior to 1979, the dramatic shift after 1979 – following the implementation of trickle-down theory – is truly breath taking. As we move into the 2000’s and then the housing crash of 2008, things get significantly worse. Much of this can be tied back to one major sale/merger in 1998. In 1998 when Citigroup purchased Travelers Insurance, they were in violation of the Glass-Steagall act which was a law passed in 1933 whose intent was to prevent banks from merging and becoming too big to fail; in other words, it was passed to prevent investment banks from merging with commercial banks. At the time, in 1998, Alan Greenspan was the head of the Federal Reserve and he was pushing for the merger (Taibbi). He lobbied, with the help of major banking CEO’s, to have a new law written which turned into the Gramm–Leach–Bliley Act which was passed to “modernize banking for the current times.” What it really did was deregulate an industry while Greenspan was pumping the economy – or more specifically the big banks – with endless hoards of next-to-free money. That de-regulatory action alone helped lead to the .com crash of the 1990’s and the housing crash in 2008 after flooding the banking and insurance industry executive pockets with hoards of cash. Trickle Down Theory followed by the de-regulatory push by Greenspan in the 1990’s and 2000’s – with help from President Bill Clinton and George Bush – has led to a wealth gap divide that we have not seen since the 1890’s (Taibbi).

Despite the growth in the compensation divide since the 1980’s, the average production of an American worker has actually increased. Between 1948 and 1979 productivity of the average worker grew 108.1% and the average compensation grew 93.2%. Between 1979 and 2018, worker productivity has grown 69.6% but the average compensation grew only 11.6%! According to “for future productivity gains to lead to robust wage growth and widely shared prosperity, we need to institute policies that reconnect pay and productivity and restore worker power, such as those in EPI’s First Day Fairness Agenda and the Agenda to Raise America’s Pay. Without such policies, efforts to spur economic growth or increase productivity (the largest factor driving growth) will fail to lift typical workers’ wages. (EPI). In other words, we need to start compensating people based on the work they actually do; as revenues grow, and productivity increases, so should workers wages. We cannot rely on our corporations to police themselves, they must be held accountable by a government that works for fair and equal opportunities and compensation for all levels of employment. History has shown us that when we rely on corporations and share holders to drive compensation, we see a dramatic increase of wages at the top – in such position as CEO – while the majority of wages stagnate.

Since 1978, no group of employees has seen more growth in their wages than CEO’s. Since 1978, CEO wages have grown 940.3% after accounting for inflation. If you factor in stock compensation as well, the increase grows to 1007.5%. This escalation has been 25-33% greater than the growth of the stock market itself over the 40 years. The divide can best be visualized below:

The thing that stands out the most in the above table is the private sector workers percent change. It never goes above 19.9% despite the CEO wages seeing growths over 1000% in multiple blocks. While the stock market has boomed, the distribution of wealth to the top is counter intuitive; the fallacy of growth being driven by “job creators” and not the employees themselves leads to a decrease in labor laws and protections and, as we see, it leads to an increasing wealth divide that has impacted the overall quality of life for the average citizen.

In the 2020 Presidential Election, there was a lot of enthusiasm surrounding the main ballot – Trump v Biden – but there were some things that went unnoticed that exemplify the direction our nation is headed. Prop 22 in California and The Fair Tax in Illinois were two entirely different types of legislation on the ballot, but their rejection by the voters told a similar story. Propaganda being pushed out by the wealthy has led to citizens voting against things that may be beneficial to them. In the case of Prop 22 – Uber and Lyft were trying to push forward legislation that would allow them to classify their employees as independent contracts in the state of California as opposed to employees (Conger). This would allow them to avoid offering things such as PTO, sick pay, and health care benefits to their workers. An ad campaign was funded by both companies, and the premise of it was the same; “if we make you employees, you will lose your right to work when you want. You will lose your freedom.” This is entirely untrue; based on California labor law, a full-time employee is someone who works at least 30 hours a week or 130 hours a month, but it does not require them to have a set schedule. This type of misleading advertising shouldn’t be allowed, as it misleads people regarding a law that further degrades away at workers rights. Uber and Lyft spent 200 million dollars on advertising in the state all to avoid paying their employees a living wage while offering them benefits and health care. That 200 million is a prime example of the disproportionate wealth that is held and used by the elite to further enhance the economic divide while degrading away at workers rights in this country. Without regulation on the money spent within politics, and to influence politics, this direction of inequality will only continue to expand until it reaches a point of no return. Uber and Lyft were not alone, as Amazon has also fought rigorously to squash union uprisings from within their company and they have done so successfully (Kopytoff).

As we move forward as a society, these trends can only lead to further hardship and pain for the millions of Americans this economic divides effects. One area we can see this firsthand is in the life expectancy of an American. As seen below:


With health care becoming more and more expensive over the past 40 years; From $1,100 per capita in 1980; to $2854 in 1990; to $4878 in 2000; to a whopping $8402 in 2010 and the decline in workers’ rights and regulations, you can see above that the life expectancy of the Average American actually declined between 2012 and 2016, and since 1980, we have lagged behind comparable develop nations in growth nearly every year. Additionally, as the economic divide continues to expand, the education levels decline in this country; as the USA went from ranking in the top 5 in math, science and reading in 1980 to 29th in math by 2012 (Chappell). The good news is it’s not too late to act. In the 1890’s, following the Industrial Revolution, as Americans began to move to big cities and work in factories, they were finding the pay was lacking, and the conditions were poor. They spent decades fighting the elite to achieve a fair pay and benefits for all who worked in the factories. As World War I and World War II began, the divide began to shrink as the New Deal ramped up production nationwide – enriching not just the few, but the many. With the environment fast changing due to Global Warming, there is an opportunity in front of us for another New Deal – this time a massive Global Green New Deal. In attempt to push net carbon emissions to zero by 2050, there is a huge opportunity to create jobs, modernize the country, and distribute the wealth based on production and contributions – not based on having a CEO or executive title. The fact is, this country was built on the back of the average worker, not in a conference room or in the lobby of the Federal Reserve. As we move forward as a society it is imperative that we push for greener energy, cheaper health care, and full employment for all. It is also important that we look back on the Glass-Steagall law, and assess how we went wrong. The concept of a company being too big to fail is a dangerous one; one in which you can’t hold those at the top accountable. As we move into a new chapter of society, and onto a new political party in office, it is important that we push to get our voice back; not just as people, but as employees. We have seen this before as a country during the gilded age, where the wealth and power was hoarded by the few and used against the many. It’s not too late to change this narrative, and to change this country, but pursing a future of sustainability; a future of prosperity and opportunity for the many not just the few.