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Friday, October 28, 2016

Purveyors of Ferraris and high-end Swiss watches keep their fingers crossed toward the end of each calendar year, hoping that the big Wall Street banks will be generous with their annual cash bonuses.

New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record.

That money will no doubt boost sales of luxury goods. Just imagine how much greater the economic benefit would be if that same amount of money had gone into the pockets of minimum-wage workers.

The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.

And boosting their pay in that way would give our economy much more bang for the buck. That’s because low-wage workers tend to spend nearly every dollar they make to meet their basic needs. The wealthy can afford to squirrel away a much greater share of their earnings.

When low-wage workers spend their money at the grocery store or on utility bills, this cash ripples through the economy. According to my new report, every extra dollar going into the pockets of low-wage workers adds about $1.21 to the national economy. Every extra dollar a high-income American makes, by contrast, only adds about 39 cents to the gross domestic product (GDP).

And these pennies add up.

If the $26.7 billion Wall Streeters pulled in on their bonuses last year had instead gone to minimum-wage workers, our economy would be expected to grow by about $32.3 billion — more than triple the $10.4 billion boost expected from the Wall Street bonuses.

This immense GDP differential only speaks to one price we pay for Wall Street’s bonus reward culture. Huge bonuses, the 2008 financial industry meltdown made clear, create an incentive for high-risk behaviors that endanger the entire economy.

And yet, nearly four years after passage of the Dodd-Frank financial reform, regulators still haven’t implemented the modest provisions in that law to prohibit financial industry pay that encourages “inappropriate risk.” Time will tell whether last year’s Wall Street bonuses were based on high-risk gambles that will eventually blow up in our faces.

Low-wage jobs, on the other hand, endanger nothing. The people who harvest, prepare, and serve our food, the folks who keep our hotels clean, and the workers who care for our elderly all provide crucial services. They deserve much higher rewards.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is the author of the new report Wall Street Bonuses and the Minimum Wage.

Cross-posted from Other Words

AFP Photo/Stan Honda

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  • charleo1

    I don’t believe articles that seem to portray the rich as green eyed, slime balls, by comparing their admittedly, astronomical salaries, and bonuses, with, relatively unskilled, low wage service jobs, particularly helpful. First
    it feeds into this narrative, the Left is aganist the rich. That they somehow
    want to punish them for their hard work, and success. Or, that we are
    anti-business. When nothing could be further from the truth. Then they
    read an article on a Left leaning website, and there are a lot of them like
    this one. And, maybe it plants a seed. Makes the wrong impression.
    When actually the only people that are claiming the Liberals are bashing
    the wealthy, are the Right Wing politicians. They are also the ones that
    stand in the affirmative for keeping a seriously skewed, dangerously top
    heavy, supply side economy. That in the end, works aganist everyone’s
    best interests, including Wall Street’s. Everyone should know, income
    inequality is not just a problem that threatens the U.S. economy. It’s a
    world wide phenomena, that is distorting the flow of wealth, and the
    ability of economies to sustain themselves. At this year’s World Economic
    Conference, in Davos Switzerland. Where the unimaginably wealthy get
    together, with other world leaders, and noteworthy economists, and
    discuss economic matters on a global scale. The number one issue this
    year was, income inequality. Two absolutely staggering numbers coming out of Davos, was the news that just 87 people control more wealth than the bottom half of the World’s population. Or about 350 billion people.
    And they should know, as most of them were likely there. And they agree
    not with the constant genuflecting of the political Conservatives in this
    Country. But, with the message of President Obama, and the Left. That
    sustainable economies must grow from the middle out, not the top down.
    That there must be ways found to support the collapsing wages of the
    worlds economies. When automation is replacing workers, and multi-
    national corporations may shop the world, for the cheapest labor. And
    seek out the most accommodating governments. Creating great wealth
    for a few. But at a terrible cost, in both Human Rights, and the world’s
    fragile environment. What we on the Left should be pointing out with
    vigor, is business agrees with us! That the wealthy are, for the sake of
    sustainable growing markets, and profits, supporting the policies of
    Democrats, around the world.

    • chuck conner

      charleo1, Your not going to get this type of article in The Wall Street Journal. Maybe we should just keep quiet and let everything go. I think there should be more articles of this kind. And when did it come to being, that only the smart and well educated are working hard. Take a job at one of these service jobs you mentioned and see how hard they work. Being poor does not mean your lazy. If you cannot stand for the poor, then you are with the rich.

      • charleo1

        I hear you. But the WSJ is controlled by Murdoch, which
        is representative of a group of American Capitalists, that
        are seen by the majority of business people around the
        world, as extremely short sighted, (the next quarter,) and ultimately advocating disastrous economic policies for the long term. This is the general consensus of the business community outside the U.S. Where Germany is widely held out as a template for creating a wealth producing, self sustaining economy. That doesn’t rely on huge amounts of government debt, and cheap labor, to sustain the standards of living, required for a modern first world, Nation. As a matter practicality, the political process has been all but bought out, here in the U.S. At least for the time being. And that doesn’t bode well for the working people, to get into a pissing contest with entities, and individuals that have the money to bury, not only the poor, but make the middle class a thing of the past. My comment was not an advocation to abandon
        the poor, but merely suggested we not alienate a group
        in the small business community, that is more than ready to hear they have a political ally in the Democratic Party. One that is willing to give them more than lip service. While, the Republican Party seeks to hand the Country to the Murdochs, the Kochs, and the Wallmarts. We know the poor are the hardest working people in the
        Country. And we know the system is rigged aganist all
        of us. But, as we’ve seen, that alone doesn’t win political
        victories. The poor don’t vote in large percentages. And,
        when they do, a good number of them don’t vote in their best interests. We’ve seen it. So we need a better narrative than, let’s increase the minimum wage, and
        secure the social safety net. Let’s start by calling this
        particular brand of Corporate Capitalism out, for the
        economy wrecking, price fixing, competition crushing, enterprise it ultimately is. And let’s not drive our natural
        allies into a camp where none of their best interests are
        supported. Obviously, we need the help.

        • chuck conner

          Everything you stated is absolutely correct. Someone has to tell the poor and middle class that they have to stop voting against their interests. Just because you like gun, doesn’t mean that liberal are against them. We have to educate these people with the truth. We have to speak out against the lies. Good talking to you.

          • charleo1

            Likewise Chuck.

    • paulyz

      charleo1, see what happens when someone that talks with common-sense like you? You get anger & hate. By the way, “most” businesses operate on a very small profit margin, and this is just more class warfare & envy for votes……….

      • idamag

        Most businesses do. However, the super rich multi-national corporations are getting the tax breaks and the money.

      • charleo1

        Well, I don’t feel it comes from hate, or envy. Number one, because that’s not where the vast majority of the Democratic Left are coming from. Sure, business is tough right now. Especially for smaller operations. I think we’ve got to make the case, there is a perfectly logical reason for that. And it has a lot to do with what happens to the money supply in the U.S. once it enters the economy. And, how that effects the average amount of disposable income of the regular consumer walking by, or coming into the shop, or store. Or, businesses offering services. We should also make the case, this general lack of money is no accident, but is policy driven. And can be adjusted back closer to where it was before. And that will require doing some simple things. Like changing some of the unfair rules, and enacting some other rules, the big money corporatist, and those who want special treatment won’t like. But, these are things we must do. Or, accept a much lower standard of living, with much less of a chance of the next generation doing even half as well as we have.

  • lemstoll

    Just a lot of “bull” as usual…

  • idamag

    The economy is consumer driven, WalMart, hear that? Treating the workers, who make businesses rich, like a POS is going to hurt everyone. The Koch brothers can establish four organizations to promote deregulation and no taxes for the wealthy, but if a worker joins a group to promote his field, he is wrong. Take your crust of bread and shut up. I gave you a job. Be grateful.

  • Jon McCasper

    Although liberty & collectivism both offer “equality”, liberty offers equality of opportunity while socialism offers equality of servitude.