Traditionally, the top 20 U.S. employers have collectively earned $1.1 trillion in profits between 2011 and 2015, while the average worker’s wage has barely budged since 1965. But in the mid-1990s, this gap in wages and profits narrowed radically:
In 1993, the average worker in the U.S. earned $15,000 a year, while those in the top 20 companies earned $4.6 trillion in annual profits. By 2012, that ratio had grown to $6.5 trillion.
Even more interesting: If you look at the average worker versus the average worker in the other 13 countries across the planet that make up the Organization for Economic Co-operation and Development (OECD), you find that in America, a high-income worker in the OECD earns $10,000 more than an average worker in Russia. In the European Union, it’s $8,000. In China, it’s $10,000. In India it’s $11,000. And in the rest of the world, it’s $14,000.
How in the world did this occur? At one end of the income ladder, some workers have actually seen their wages fall—meaning their earnings have dropped more or less in parallel with their income from companies. At the other end of the ladder, workers in the top 1% have seen their earnings rise at a faster clip than in the rest of the country since the 1970s.
As I wrote for the Washington Post during the Reagan years, a lot of work was needed to figure out “the true nature of those trends and what they mean for the economy.” But we now have many more people who are trained to understand the effects of rising inequality on productivity and income (and who can understand how many factors affect that) than back then.
More generally, many economists, myself included, believe that there are many ways that inequality can benefit the economy, both socially and economically.
In theory, we can build on this understanding to build stronger, fairer, and more transparent politics—because the more powerful a group, institution, or country the more likely we are to believe that increasing that group’s clout is good for everything.
But more than that, by identifying the issues that impact the economy as a whole, we can change how we interact with this broader system.
For example, if inequality is fueling a decline in real-payments in some part of society, it
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