Saving Capitalism.

Author:Ullmann, Owen
Position:View from the Beltway
 
FREE EXCERPT

The gap in prosperity between wage earners and investors is growing ever more worrisome.

Amazon attracted worldwide attention--and high praise--on October 2, when it announced it was boosting the minimum wage for all 350,000 full-time, part-time, and seasonal workers to $15 an hour. That certainly sounds commendable and generous of the online retail behemoth, and the move will certainly pressure other companies to boost their minimum wage for millions of struggling workers.

Yet largely escaping attention was a trade-off Amazon is making in exchange for increasing its hourly wage: elimination of incentive pay and compensation in Amazon stock. Though that lost benefit may largely offset the pay hike for veteran workers, they nevertheless seemed happy to get a certain raise in their paychecks rather than stock that can go down as well as up.

This one example goes a long way toward explaining the widening income and wealth gap in the United States, a long-festering problem that American policymakers and politicians worry about but are struggling to solve.

It is not coincidental that just over half of Americans own financial assets and they have prospered over the past four decades, while the others are treading water economically, living paycheck to paycheck without any financial cushion to fall back on should unemployment or illness strike.

In the case of Amazon, the minimum wage hike amounts to a hefty 36 percent increase from the $ 11 -an-hour starting rate it had been paying. Sounds good, right? Not compared to its soaring stock price: it was up nearly 50 percent over the past year and 350 percent over the past five years. In fact, investors who purchased shares in the public offering in 1997 and held them have earned returns of 120,662 percent as of August 2018, according to Investopedia.

The near-term outlook for the stock of the still-rapidly expanding company also is far rosier than for worker wages, which have barely kept up with inflation over the past year despite the lowest unemployment rate in a half-century and severe labor shortages in numerous industries and geographic regions.

Across the United States, the disparity between wage gains and stock appreciation is stunning. Since 1978, hourly wages adjusted for inflation are flat, according to a study by Pew Research Center. By comparison, the S&P 500 Index adjusted for inflation is up more than 700 percent over that span, and more than 2,000 percent higher when reinvested...

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