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U.S. stocks continue to post big gains. But what about wages?

libadmin January 14, 2020
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A booming stock market therefore has little bearing on the day-to-day lives of most people. This becomes all the more apparent when you compare those gains with the increase in wages over the same period.

Since Trump took office, the Standard & Poor’s 500 index — widely regarded as a barometer of the health of the total market — has climbed about 40 percent. Wages, on the other hand, have advanced just 9 percent during the same period. What’s more, those modest pay gains were largely eaten up by the swelling costs of medical care, housing, education and other necessities.

Relative to prior presidents, Trump is unique in his efforts to claim credit for the market’s performance under his watch. But the underlying trends in the market and in wage growth predate his administration by several decades. Let’s zoom back as far as the data sets allow, in this case to 1964.

Ballooning market returns are the primary feature of this chart: Since 1964, the S&P 500 has surged by a whopping 4,116 percent, while wages have climbed a relatively paltry 852 percent (neither series is adjusted for inflation). But it also reveals an interesting shift: Stocks rapid surge past wages didn’t begin until well into the 1990s. Before that, the two series were much closer.

Here, for instance, is the same chart showing only the three decades from 1964 through 1994.

Given the economy of the past quarter-century, it may seem natural to us that growth in the stock market rapidly outpaces wage growth. But it’s clear this wasn’t always the case — in fact, for much of the 1970s and ’80s, wages surpassed stocks.

There are, of course, any number of factors that bear upon either of the two data series. They’re influenced in myriad complex ways by things like recessions, inflation rates, policy choices and the health of the global economy. But it’s nonetheless clear that starting some time near the end of the past century those complex interactions began producing a starkly different wage/stock trajectory.

There is plenty of reason to suspect, as many economists increasingly do, that policy choices made in the ’80s and ’90s are big drivers of the income and wealth trends we observe today. Tax rates on the highest earners were slashed dramatically, while lawmakers made (and continue to make) concerted efforts to weaken unions.

In short, throughout much of the latter half of the 20th century you could plausibly argue that what’s good for the stock market is good for the rest of the economy. Market returns and wages danced around each other and had their ups and downs, but largely followed the same trajectory.

In today’s economy, that’s emphatically no longer the case.

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