According to a recent study, CEOs during the 1960s earned on average $42 for every $1 earned by wage workers. Today, that ratio is $344:1.
“The average American has stopped moving forward,” Martin says. Evidence suggests that middle incomes have stagnated and as a result, households are increasingly relying on debt to finance normal consumption expenditures. Incomes for 90% of Americans have been stuck in neutral, and it's not just because of the "Great Recession". Middle incomes have been stagnant for at least a generation, while the wealthiest tier has surged ahead. In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. Fast forward 20 years, and not much had changed: The average income was still just $33,000 in 2008, according to IRS data.Meanwhile, the richest 1% of Americans -- those making $380,000 or more -- have seen their incomes grow 33% over the last 20 years.
One major pull on the working man was the decline of unions and other labor protections, said Bill Rodgers, a former chief economist for the Labor Department, now a professor at Rutgers University. Because of deals struck through collective bargaining, union workers have traditionally earned 15% to 20% more than their non-union counterparts, Rodgers said. But union membership has declined rapidly over the past 30 years. In 1983, union workers made up about 20% of the workforce. In 2010, they represented less than 12%.
"The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up with inflation," Rodgers said. Without collective bargaining pushing up wages, especially for blue-collar work -- average incomes have stagnated.
While average folks were losing ground in the economy, the wealthiest were capitalizing. A report from the Levy Economics Institute confirms a dramatic shift in U.S. wealth distribution over the past three decades. Since 1983, 43% of the new financial wealth created by the U.S. economy accrued to the wealthiest 1%. A full 94% was absorbed by the top 20%, leaving just 6% of the financial wealth created during the 80s, 90s, and 2000s to the bottom 80% of Americans. Total real income growth during that same time period was similarly distributed, with 44% of increases amassed by the top 1% and 87% of total increases accruing to the top 20%.
Though globalization has been a drag on labor, it's been a major win for corporations who've used new global channels to reduce costs and boost profits. In addition, new markets around the world have created even greater demand for their products.
"With a global economy, people who have extraordinary skills... whether they be in financial services, technology, entertainment or media, have a bigger place to play and be rewarded from," said Alan Johnson, a Wall Street compensation consultant. As a result, the disparity between the wages for college educated workers versus high school grads has widened significantly since the 1980s. In 1980, workers with a high school diploma earned about 71% of what college-educated workers made. In 2010, that number fell to 55%.
Another driver of the rich: The stock market. The S&P 500 has gained more than 1,300% since 1970. While that's helped the American economy grow, the benefits have been disproportionately reaped by the wealthy.When measuring for income inequality, the U.S. now falls within the ranks of Uruguay and Cameroon, according to the CIA World Factbook.
As corporate profits come roaring back and the stock market charges ahead, the wealthiest people continue to eclipse their middle-income counterparts."We're obviously heading toward is some kind of class warfare," Johnson said.
Harvard economist Kenneth Rogoff, co-author of a best-selling book on financial crises, “This Time It’s Different,” told Forbes that the high unemployment rate and high levels of debt in the U.S. will sooner or later trigger serious “social unrest from the income disparities in the U.S.”
Rogoff does not predict a “breakdown” or bubble bursting similar to the financial meltdown that resulted from the speculative housing bubble of 2005-08. The current upward moves in “commodity inflation, energy inflation and food inflation” will morph into “headline inflation” which will feed into core inflation and spill out into a possible trade war. Trade wars are the way populist political policies get expressed, explained Rogoff to an audience of investment bankers and money managers. A high rate of unemployment can lead to trade wars.