Near one Common Good Fellow’s home in North Carolina, someone put up a hand-painted sign that read “Money Isn’t Everything.” Which is true. But another neighbor saw that it required a rejoinder, and so wrote below it, “But It F@*^ing Helps!” Which is also true. Caring for neighbors is much easier when resources are equitably distributed.
Like many of the virus’s hardest hit victims, the United States went into the COVID-19 pandemic wracked by preexisting conditions. A fraying public health infrastructure, inadequate medical supplies, an employer-based health insurance system perversely unsuited to the moment—these and other afflictions are surely contributing to the death toll. But in addressing the causes and consequences of this pandemic—and its cruelly uneven impact—the elephant in the room is extreme income inequality.
How big is this elephant? A staggering $50 trillion. That is how much the upward redistribution of income has cost American workers over the past several decades.
This is not some back-of-the-napkin approximation. According to a groundbreaking new working paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distributions of the three decades following World War II (1945 through 1974) merely held steady, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone. That is an amount equal to nearly 12 percent of GDP—enough to more than double median income—enough to pay every single working American in the bottom nine deciles an additional $1,144 a month. Every month. Every single year.
Price and Edwards calculate that the cumulative tab for our four-decade-long experiment in radical inequality had grown to over $47 trillion from 1975 through 2018. At a recent pace of about $2.5 trillion a year, that number we estimate crossed the $50 trillion mark by early 2020. That’s $50 trillion that would have gone into the paychecks of working Americans had inequality held constant—$50 trillion that would have built a far larger and more prosperous economy—$50 trillion that would have enabled the vast majority of Americans to enter this pandemic far more healthy, resilient, and financially secure.
As the RAND report [whose research was funded by the Fair Work Center which co-author David Rolf is a board member of] demonstrates, a rising tide most definitely did not lift all boats. It didn’t even lift most of them, as nearly all of the benefits of growth these past 45 years were captured by those at the very top. And as the American economy grows radically unequal it is holding back economic growth itself.
People participate in a “March on Billionaires” event on July 17 in New York City. The march called on Governor Andrew Cuomo to pass a tax on billionaires and to fund workers excluded from unemployment and federal aid programs (Spencer Platt—Getty Images)
Even inequality is meted out unequally. Low-wage workers and their families, disproportionately people of color, suffer from far higher rates of asthma, hypertension, diabetes, and other COVID-19 comorbidities; yet they are also far less likely to have health insurance, and far more likely to work in “essential” industries with the highest rates of coronavirus exposure and transmission. It is no surprise then, according to the CDC, that COVID-19 inflicts “a disproportionate burden of illness and death among racial and ethnic minority groups.” But imagine how much safer, healthier, and empowered all American workers might be if that $50 trillion had been paid out in wages instead of being funneled into corporate profits and the offshore accounts of the super-rich. Imagine how much richer and more resilient the American people would be. Imagine how many more lives would have been saved had our people been more resilient.
It is easy to see how such a deadly virus, and the draconian measures required to contain it, might spark an economic depression. But look straight into the eyes of the elephant in the room, and it is impossible to deny the many ways in which our extreme inequality—an exceptionally American affliction—has made the virus more deadly and its economic consequences more dire than in any other advanced nation. Why is our death toll so high and our unemployment rate so staggeringly off the charts? Why was our nation so unprepared, and our economy so fragile? Why have we lacked the stamina and the will to contain the virus like most other advanced nations? The reason is staring us in the face: a stampede of rising inequality that has been trampling the lives and livelihoods of the vast majority of Americans, year after year after year.
Of course, America’s chronic case of extreme inequality is old news. Many other studies have documented this trend, chronicled its impact, and analyzed its causes. But where others have painted the picture in terms of aggregate shares of GDP, productivity growth, or other cold, hard statistics, the RAND report brings the inequality price tag directly home by denominating it in dollars—not just the aggregate $50 trillion figure, but in granular demographic detail. For example, are you a typical Black man earning $35,000 a year? You are being paid at least $26,000 a year less than you would have had income distributions held constant. Are you a college-educated, prime-aged, full-time worker earning $72,000? Depending on the inflation index used (PCE or CPI, respectively), rising inequality is costing you between $48,000 and $63,000 a year. But whatever your race, gender, educational attainment, urbanicity, or income, the data show, if you earn below the 90th percentile, the relentlessly upward redistribution of income since 1975 is coming out of your pocket.
People line up outside Kentucky Career Center to find assistance with their unemployment claims in Frankfort, Kentucky, U.S. June 18 (Bryan Woolston—REUTERS)
As Price and Edwards explain, from 1947 through 1974, real incomes grew close to the rate of per capita economic growth across all income levels. That means that for three decades, those at the bottom and middle of the distribution saw their incomes grow at about the same rate as those at the top. This was the era in which America built the world’s largest and most prosperous middle class, an era in which inequality between income groups steadily shrank (even as shocking inequalities between the sexes and races largely remained). But around 1975, this extraordinary era of broadly shared prosperity came to an end. Since then, the wealthiest Americans, particularly those in the top 1 percent and 0.1 percent, have managed to capture an ever-larger share of our nation’s economic growth—in fact, almost all of it—their real incomes skyrocketing as the vast majority of Americans saw little if any gains.
What if American prosperity had continued to be broadly shared—how much more would a typical worker be earning today? Once the data are compiled, answering these questions is fairly straightforward. Price and Edwards look at real taxable income from 1975 to 2018. They then compare actual income distributions in 2018 to a counterfactual that assumes incomes had continued to keep pace with growth in per capita Gross Domestic Product (GDP)—a 118% increase over the 1975 income numbers. Whether measuring inflation using the more conservative Personal Consumption Expenditures Price Index (PCE) or the more commonly cited Consumer Price Index for all Urban Consumers (CPI-U-RS), the results are striking.
Data Source: RAND; Graphics: Mary Traverse for Civic Ventures
At every income level up to the 90th percentile, wage earners are now being paid a fraction of what they would have had inequality held constant. For example, at the median individual income of $36,000, workers are being shortchanged by $21,000 a year—$28,000 when using the CPI—an amount equivalent to an additional $10.10 to $13.50 an hour. But according to Price and Edwards, this actually understates the impact of rising inequality on low- and middle-income workers, because much of the gains at the bottom of the distribution were largely “driven by an increase in hours not an increase in wages.” To adjust for this, along with changing patterns of workforce participation, the researchers repeat their analysis for full-year, full-time, prime-aged workers (age 25 to 54). These results are even more stark: “Unlike the growth patterns in the 1950s and 60s,” write Price and Edwards, “the majority of full-time workers did not share in the economic growth of the last forty years.”
Data Source: RAND; Graphics: Mary Traverse for Civic Ventures
On average, extreme inequality is costing the median income full-time worker about $42,000 a year. Adjusted for inflation using the CPI, the numbers are even worse: half of all full-time workers (those at or below the median income of $50,000 a year) now earn less than half what they would have had incomes across the distribution continued to keep pace with economic growth. And that’s per worker, not per household. At both the 25th and 50th percentiles, households comprised of a married couple with one full-time worker earned thousands of dollars less in 2018 dollars than a comparable household in 1975—and $50,000 and $66,000 less respectively than if inequality had held constant—a predicament compounded by the rising costs of maintaining a dignified middle-class life. According to Oren Cass, executive director of the conservative think tank American Compass, the median male worker needed 30 weeks of income in 1985 to pay for housing, healthcare, transportation, and education for his family. By 2018, that “Cost of Thriving Index” had increased to 53 weeks (more weeks than in an actual year). But the counterfactual reveals an even starker picture: In 2018, the combined income of married households with two full-time workers was barely more than what the income of a single-earner household would have earned had inequality held constant. Two-income families are now working twice the hours to maintain a shrinking share of the pie, while struggling to pay housing, healthcare, education, childcare, and transportations costs that have grown at two to three times the rate of inflation.
Hanauer is an entrepreneur and a venture capitalist, the founder of the public-policy incubator Civic Ventures, and the host of the podcast Pitchfork Economics. Rolf is Founder and President Emeritus of SEIU 775 and the author of The Fight for Fifteen (New Press, 2016)