These two graphs(opens in new tab) go a long way toward explaining why the U.S. economy is still in the doldrums.
1) Wages, as a share of economic activity (GDP) have never been lower:
2) While corporate profits (as a share of GDP) have never been higher:
High profits are sweet nectar, but when workers are paid too little, people don’t have money to spend, and businesses lose their revenue stream. That’s particularly hard on small businesses that typically don’t have millions (or billions) in cash reserves on hand, like big corporations do.
For a time, it’s possible to make up the gap with cheap imports and lots of consumer borrowing, but in the end those aren’t sustainable trends. It’s the movement of money – not the accumulation of it – that makes our economy function. And while money does move from corporate profits into shareholder’s pockets, that process doesn’t create nearly the kind of broad consumer demand you get when you build a prosperous middle class with good wages and benefits.
If state and national policymakers are serious about putting our economy back on track, putting more money back in the hands of consumers is a vital step forward. Raising the minimum wage(opens in new tab) (for starters) would be an effective and efficient way to do just that.