American workers are working harder than ever before but have little to show for it. The average worker experiences significant economic insecurity, and 44 percent of U.S. adults still cannot afford an emergency expense of $400. In contrast, the wealth of Wall Street continues to increase and CEOs’ salaries are 271 times greater than workers’ pay. Wall Street’s focus on wealth accumulation for the rich is often by explicit design and comes at the direct expense of American workers. This series of essays will explore the ways in which Wall Street undermines U.S. workers and changes that must be made in the U.S. economy to grow the middle class and restore the value of work.
Chapter 1: Wall Street Doesn’t Want You to Get a Raise
Wall Street has tried to convince us that when the stock market does well, the economy does well and vice versa. But the growing success gap between Wall Street and Main Street calls that into question. Companies cannot be profitable without their workers, but it is clear that workers are not sharing in the profits they create for their employers. In fact, workers’ share of income has fallen over the last four decades, and wage inequality has risen, especially at the largest companies.
Some might argue that workers who have retirement accounts share in the benefit when the stock market does well, but there’s a key difference. Only 50 percent of private sector workers have these types of accounts at all, and they use them to make long-term investments for their retirement. And just because a worker has a retirement account does not mean that they are able to save: nearly 70 percent Americans have less than $1,000 in retirement savings. The fact is, a paycheck is how most working families pay their bills every month and put food on the table each night.
Wall Street has a lot to say about how much should be in that paycheck. Take for example, last month, when Bank of America downgraded Chipotle’s stock because an analyst decided the company’s employees were working too many hours and getting paid too much. Moreover, the Bank did not see any way for Chipotle to cut its workforce costs any more than it already had, arguing that “further gains from trimming [workers’] hours” were not feasible. Chipotle objected to the assessment, saying, contrary to Bank of America’s view, they could further reduce employees’ hours and, therefore, their workforce costs. The company’s protestations did not convince Wall Street. The banks had decided that Chipotle employees worked too many hours and earned too much money, and the company’s share price declined by 3 percent as a result.
Chipotle does not pay its workers high wages. In fact, reports suggest the entry-level wage is between $9 and $10, which is typical for the fast food industry and not enough to lift a family of three out of poverty. Moreover, Chipotle is currently facing a lawsuit brought by nearly 10,000 employees who allege that the company committed wage theft and denied them all of the pay they had earned. Chipotle argues that they offer other benefits to employees that make their total compensation package more substantial, but Bank of America’s report did not target these additional benefits as justification for the stock downgrade. On the contrary, the bank asserted that it would be too difficult to find additional “gains” from reducing workforce costs further. That’s right, Bank of America defines gains as making cuts to workers’ pay and hours.
That’s right, Bank of America defines gains as making cuts to workers’ pay and hours.
Wall Street’s attacks on workers’ wages have not been limited to Chipotle. When American Airlines announced pay raises for its pilots and flight attendants earlier this year, Wall Street punished the company’s stock price by 5 percent. A Citi Bank analyst actually wrote: “This is frustrating. Labor is being paid first again. Shareholders get leftovers.” Never mind that the “labor” in question simply pushed to get paid the same as their counterparts at United and Delta.
The CEO of American Airlines defended the raises on a call with shareholders. He argued that “this kind of investment in our people is going to make the difference in our service…it’s the kind of investment that will continue to drive revenue outperformance for American. And as that happens, all of you will be the beneficiaries of those returns.” These raises, the CEO offered, were good for their employees, of course, but would also pay dividends to investors down the road. Wall Street did not buy it and punished the stock for what J.P. Morgan’s analyst described as a “wealth transfer of nearly $1 billion to its labor groups.”
Funny, Wall Street did not express concern or call it a wealth transfer when J.P. Morgan’s CEO Jamie Dimon received a 4 percent raise and was paid $28 million in 2016. He received this outsized compensation despite the fact that, that same year, the bank was fined $374 million by state and federal regulators for numerous violations, including whistleblower retaliation, foreign bribery, and racially discriminatory mortgage lending practices. And none of the banks complained about wealth transfers when Wells Fargo CEO John Stumpf was allowed to retire with tens of millions of dollars in compensation left untouched after overseeing a massive scandal that caused the bank’s stock to tank.
And none of the banks complained about wealth transfers when Wells Fargo CEO John Stumpf was allowed to retire with tens of millions of dollars in compensation left untouched after overseeing a massive scandal that caused the bank’s stock to tank.
Wall Street was not always fixated on short-term profits at large companies. Nor was it always focused on expanding wealth for the wealthiest. In the past, banks invested in businesses, and, therefore, workers on Main Street. According to recent analysis, however, only 15 percent of Wall Street funds are invested in businesses, down from a majority of funds several decades ago. This change in business model has been a successful one for the financial sector. Wall Street now makes up seven percent of the economy, nearly double what it was in 1980. And it accounts for 25 percent of all corporate profits, even though it creates only four percent of U.S. jobs.
This imbalance between Wall Street and Main Street priorities has caused a fundamental shift in how our country values a hard day’s work. Wall Street and corporate executives are focused on growing their own wealth, not workers’ wealth, and they want a return on their investment now. CEOs are evaluated based on the quarterly performance of their companies’ stock and are compensated in large part with company shares. By contrast, Main Street investors and workers only make a profit when a company’s long-term prospects look good, and they aren’t in the business of speculative trading based on day-to-day juicing of the stock price. They get wealthier only if the company’s stock market value continues to rise over time. As a result, Wall Street does not view the workers making burritos at Chipotle as real people with real families. It does not view pilots and flight attendants at American Airlines as important positions critical to the safety and functioning of our airlines. Instead, to Wall Street, all of these workers are merely a line in a company’s budget to be minimized in the short-term and the long-term.
In short, Wall Street does not believe in the dignity of work. As in the examples of Chipotle and American Airlines, Wall Street thinks workers are merely “labor” not worthy of raises. That’s why the finance industry has no problem taking pay out of the pockets of workers — pay that would otherwise drive innovation and productivity — to boost short-term profits for CEOs and speculators. Until the banks on Wall Street respect a hard day’s work and understand that work must have value for the economy to grow, we will continue to see the consequences. The success gap will widen. Workers’ wages will decline. Our middle class will shrink. And our economy growth will continue to lag behind.