Workers in West Virginia should be making $117,000 a year on average — and they would be, too, if only we had pursued the same economic strategies we had in the postwar years between 1945 and 1975.
Instead, we’ve taken power away from workers, lowered taxes on the wealthy and designed an economic system that redistributes money upward.
That $117k figure might sound implausible, but it’s not. In fact, it comes from a detailed new study by the RAND Corp.The study finds that the upward redistribution of income over the past four decades has taken trillions of dollars from workers. We’ve known for several decades that income inequality has been growing in the United States, mainly from a lack of bargaining power of workers and other rules that have stacked the deck against working families.
The RAND paper looks at the past 45 years of trends in income (e.g. wages) for people across percentiles (10th, 50th, 90th, etc.) and asks what would have happened if the bottom 90% of people saw their income rise at the same rate as economic growth, or growth in the gross domestic product. The paper finds that, had incomes grown for the bottom 90% the same as they did during the 1950s and 1960s — roughly aligning with growth in per capita national income and GDP — workers would have had an additional $47 trillion in income.
That’s not a typo. According to the study, that is the price tag on how much income inequality costs American workers.
In 2018 alone, the inequality that is baked into our economic system costs workers approximately $2.5 trillion each year, or about 12% of GDP. To put this in perspective, the study finds that the typical full-time worker — the one in the middle of the income distribution, or median — in America would have annual earnings of about $92,000 a year, instead of the $50,000 they make today. That’s a difference of $42,000 annually.
For example, a full-time, year-round worker in West Virginia makes on average $4,000 less today (2018) than they did in 1979 after adjusting for inflation. If this worker’s income grew at the same rate as the state’s GDP from 1979 to 2018, they would have made $65,000 more in income or $117,000, instead of $52,000.
Just think how much easier life would be if most workers earned more than twice what they do today. And how much additional money and tax revenue we would have to invest in our kids and communities.
These findings are similar to what has been known since the late 1970s as the “productivity-pay gap.” Between 1948 and 1979, productivity (how much workers produce per hour) and compensation (wages and benefits) grew together, but, since this time, productivity has grown six times faster than pay. If they grew together, like before, pay would be about 60% higher than it is today.
While the RAND study has a few limitations, it paints a stark picture of the enormous levels of income inequality that have grown over the last 45 years. This growth in income inequality also has coincided with extreme levels of wealth concentration, or the total amount of assets people own.
New data from the U.S. Federal Reserve show that, in the first half of 2020, the top 1% of Americans now have a combined net worth of $34.3 trillion, while the poorest 50% — about 165 million people — hold just $2.1 billion. The shocking fact is that the 50 richest people in the country now have more money than half the country.
It is no coincidence that the devastating income and wealth inequality over the past several decades has coincided with the decline in unions. During the first two post-war decades, when unions represented about one-third of private-sector worker, middle incomes grew with productivity and economic growth. Today, just 6% of private-sector workers are in unions.
Most of the economic problems faced by workers are by design. These problems are not the result of the natural workings of the market or globalization. Government policy shapes market outcomes, and virtually every industry is heavily dependent on government, which, in many instances, had weakened unions and rolled back workplace regulations.
To unrig this inequitable system, it will require shifting power from corporations to workers. It will require ensuring the rich pay their fair share in taxes, that unions are easy to join and that everyone has access to health care, paid leave, college, workforce training and a decent standard of living.
We have the money and the resources to build a better economy with good-paying jobs and a better quality of life. Now, we just need the political will to make it happen.