MAKING AMERICA GREAT AGAIN
By: Lenore S. Davis, Esq.
I have not done research on this theory. I write this from anecdotal information from my Estate law practice.
How did the United States distribution of income become so extremely polarized with 1% of the population ultra-wealthy billionaires, making exponentially more than the remaining 99%.
“Income disparities have become so pronounced that America’s top 10 percent now average more than nine times as much income as the bottom 90 percent. Americans in the top 1 percent tower stunningly higher. They average over 39 times more income than the bottom 90 percent. But that gap pales in comparison to the divide between the nation’s top 0.1 percent and everyone else. Americans at this lofty level are taking in over 188 times the income of the bottom 90 percent.” www.inequality.org.
Wealth distribution is also grossly skewed. I have been pondering this for a while, and this is what I’m hypothesizing.
After World War II, 1945, there was a labor and housing shortage. Consumer goods were rationed during the war, with materiel being redirected to the war effort. After the war, demand for consumer goods and homes and just about everything was great.
To induce employees to join a company and ensure loyalty, the company offered salaries and benefits. Health benefits, pensions and some times life insurance as well. The companies funded the pensions with company stock, and as the company’s wealth grew, so did the pensions and pension benefits. The pensions were funded solely by employers for the benefit of employees.
Then Congress passed the Revenue Act of 1978, which created a new retirement vehicle/investment colloquially called the 401(k). Employees could save for retirement by deferring some of their current income by contributing to a 401(k) for the benefit of their retirement years. Employers and advisors quickly jumped on this new vehicle, encouraging employees to start saving for their own retirements, THEREBY relieving employers from what employees had taken for granted, Employer sponsored and funded retirement accounts.
At first, many companies induced their employees to contribute by offering a company match, many times matching what employees contributed by contributing an equal value of company stock. At this point, the wealth of the company was still shared by employees, because they were given shares of the company stock in their retirement funds. As the company declared dividends, the employee’s many times rolled over the dividends and bought additional shares of company stock, and in this way enjoyed company wealth in two ways, capital appreciation and stock dividends.
In the 1980s, the Asian companies came to the Global Economy, importing goods at a fraction of the price. To compete, American companies at first had to try to lower their costs, a great deal of it labor. They fired experienced workers who were making a great deal more than new recruits. When the new recruits were hired, they were not provided the same pay and benefits as prior workers. It started a whole new era in the American workplace by starting a cycle of laying off senior workers for the benefit of newer/cheaper labor, and each round of firing/hiring, permitted employers to provide lower and lower pay and benefits.
When this did not suffice, American companies started moving their companies manufacturing and other labor, e.g., customer service, computer tech service, overseas to Asia and India, and customer service was laid to waste. Customers complained, companies ignored them, because almost all the companies had done the same thing, and there was no one to whom to complain, other than a voicemail message machine. And for some reason, the American consumer has accepted this.
Then came the dot.com market crash and the great recession. Unemployment went from 4% to 10%+ and it was an even more aggressively employer market. An advantage American employers have had up until about a week ago. Many media outlets were wondering how it could be that the employment market was tight, and yet wages remained stagnated.
There are way fewer full-time workers in the economy. This is so, because companies seem to have a full selection of workers who don’t mind working as independent contractors, e.g., drivers for Uber and Lyft. How did this shift come about?
I believe it hearkens back to the last great recession in 2008. It took almost a decade to recover economically from that downturn. Irrational exuberance, unregulated greed. Women retained their lower paying positions in companies, while the men were laid off. As the economy grew, the women were promoted slowly, still at a lower parity with men, but to their own economic benefit.
The men looked where they could for work. Some dropped out from the workforce and stopped looking for a job altogether, and many have not returned to this day (which overstates the employment rate in that the unemployment rate measures those who want to be in the workforce, who are unemployed. Once people drop out of the workforce, they are no longer part of the unemployed statistics). That’s where many of the internet companies come into play, employing workers who are not full-time, who do not get full salaries and benefits. (This also exacerbates the statistics for those who cant afford health insurance, because fewer people are now covered by their employers, and why this generation and coming ones are/will be under-financed for their retirements). It was an employers’ market for so long, that it is almost accepted that the new generation will not be offered health insurance, retirement benefits and the tax benefits of full time employment.
Interestingly, I would love to poll the new graduating classes and determine whether they even want full-time employment. I am not sure they have the internal constitutional ability to sit for a full day and get work done. Again, purely anecdotal, I have walked into client offices which look like adult jungle gyms with candy strewn all over. I have had assistants who could not sit at a task for more than 20 minutes. Asked, I am not sure whether new graduates prefer a stable job and benefits over the freedom to be their own boss making their own schedules. They sneer when they talk about the long days their parents are working, and the sacrifice to family time.
And that is the truth. One of the reasons for pay stagnation is increase in productivity. Employers squeezing out more time from employees, so additional workers are not required. Another employee bi-product of the employer market.
I don’t want to be a nihilist, but if America has to compete with the Asian and other third world countries for labor prices, what seems to be happening is that instead of forcing foreign manufacturers to pay their workers a decent wage and provide them with living benefits, we are reducing our working class to subsistent standards, to squeeze out profits from domestic workers, who will take less, for fear that the jobs will move elsewhere.
Behold there are difficult days coming. President Trump has increased the tariffs on foreign goods, we will see the prices of many goods and food shoot up, and it will hit our pockets and workers hard, as demand for products domestically will plummet as prices soar. If other countries retaliate, our demand for U.S. products abroad will plummet as well.
What is the intended goal of all this? To raise the prices on foreign goods as an incentive to Americans to buy local. If this happens, then domestic demand will increase, and local manufacturers will have to produce more products to keep up with demand. To do this, they will have to hire more workers. This will tighten the labor market, forcing companies to pay workers more and/or offer them increased and better benefits. More money in worker hands, permit them to purchase more, increases demands for domestic products and keeps the U.S. economy humming along.
No doubt, short term, the average will feel pressure on his pocket. Let’s hope this strategy accomplishes its intended goal of MAKING AMERICA GREAT AGAIN.