The Wage Gap

Hello everyone.

It’s great to back from the holidays, and I hope that you all had a wonderful holiday season.  But now, it’s back to business for all of us.

To start this new year, I wanted to address a very serious topic that has been making the rounds in the news media lately, but even with all the information presented and available, significant gaps still exist within the discussion of this issue. Also, quite bluntly, much of the media is too timid to address the serious points of this problem truthfully & openly.

So this month’s focus will be on the wage gap, and the domino effect it has on the lives of individuals throughout their lifetimes,  plus some of the effects it has on society in general.  Most importantly, there are also a few suggestions mixed in that can be used to get things moving in the right direction.

Before we begin, it must be forewarned that much of what will be stated is the blunt truth, which could cause some individuals to continue to deny the reality of the situation in order to maintain their illusions and self-serving attitudes.  However, in order to really move the world past this problem once and for all, there can be no more denial, misinformation, or delusions regarding this topic.

Here goes…

The Wage Gap

The problem of diminishing wages for the workforce has been a topic in the forefront of media discussion for the past few years.  It particularly took center stage near the end of 2014, as multiple reports emerged of how the wealthy made virtually record breaking gains within their income brackets, while the middle class continued to fall behind.

I.  How did this happen?

While some individuals believe that this is a recent problem of the past decade, this is simply not the case.  As I mentioned in my book – Revelations Incorporated – this wage gap issue actually began at about the year 1980, (long before many of us even entered the world of employment), when people and businesses began making significant use of credit lines and loans instead of actual capital.  That activity subsequently created the illusion that they had more wealth (on paper) than they actually physically possessed.

This then allowed the financial exploitation of that illusion to run rampant within the corporate and employment sectors. The issue was then compounded even further in the 1990s with the signing of NAFTA and other free trade agreements.  These legal maneuvers further diminished the position of the American worker in favor of the Corporate elite.

There were other various things that happened over time, but the situation finally reached its peak with the massive recession that  occurred in 2006 and continues to the present day.  Due to the environment of fear (particularly regarding job loss) running rampant among their employees, the Corporate world realized that they could get away with not paying raises, indiscriminately reduce headcount and not hiring replacements, and squeezing existing workers past the breaking point all under the guise of “downsizing”, “belt tightening”, or any number of other buzz terms.  This was done even when it was not necessary, and it is no secret that business has been sitting on billions of dollars in recent years, blatantly refusing to budge with hiring or rewarding employees.

These activities in turn have allowed business leadership to continue to make massive profits for the people at the Executive, CEO, Management and stockholder levels, while giving virtually nothing to the people doing the real work.

II.  The Present Environment

The problem of being paid wages that don’t keep pace with the non-stop rising cost of living has resulted in severe ongoing consequences for the majority of individuals within the workforce over the past 3 decades.

Let’s take a look at the current work environment:

  • Hiring

It’s a fact that Corporations have not been hiring new workers at a proper level for years now.  Many sources claim this to be the result of the recession, and in a few (key word) specific cases this can be considered as true.  A limited number of industries simply do not require the same number of workers they once did.  This is due to technological advances, diminishing markets, and other circumstances.

However, there is a far darker, more insidious set of reasons as to why hiring has become so stagnant and unyielding.  Here are just a few examples:

  1. The Crushing Fear

As mentioned previously, the business world has been engaged in the exploitation of the fear of job loss for many years now. This exploitation has allowed business to proceed with downsizing (many times unnecessarily), and then forcing the additional work onto the remaining staff without any regard whatsoever.  If anyone complains, they are then also shown the door.

This has created a dangerous phenomenon within the corporate world in general, in that they have become so accustomed to running people into the ground while making huge profits that it has become ingrained as standard operating procedure within their collective psyche.  This is akin to an individual that is dangerously addicted to drugs, alcohol, etc.  It runs so deeply now that it will be extremely difficult to bring things back to a normal environment.  In fact, most companies have now forgotten what normal actually is.

2.  Less than Perfect…..

Over the past several years, when most job openings have appeared, HR departments across the board have left them out there to linger and not hire anyone that does fit the exacting and overblown expectations that they have in mind just as the minimal, basic requirements needed to even be considered for an interview.

This allows the corporate world to say that jobs are available, but they can’t find suitable candidates.  So on paper it continues to look as if the job market is better than it actually is, but that is nothing more than an illusion.

3.  It’s All or Nothing

Another trick that companies currently pull is combining the requirements of multiple jobs into one, while offering much less pay for the entire package than they would have for one of the individual jobs just a few years ago.  Reasonable applicants then view the job requirements and are rightfully appalled.  But again, due to the difficult factors facing prospective employees in the current climate, those individuals have no choice but to accept all the requirements just to try and get a job at all.

Companies know this and have been able to get away with this behavior for years now with minimal repercussions.

4. The Untouchable Unemployed

One of the most reprehensible activities concerning hiring has been the Business world’s push to hire only people who currently already have jobs.  It has now become a massive egotistical battle among companies to try and steal each other’s staff.  Instead of giving a chance to a qualified candidate seeking to end their unemployment status, companies engage in a form of Corporate chicken by trying to see who will “blink first” as they make offers back & forth trying to bring each other’s individual workers over to “their side”, as it were.

  • Beyond the Pay Grade

Even if people have been fortunate enough to find employment, there is another punishing aspect of the current business climate that is rarely discussed.

That is, once a person becomes locked into a particular salary range, it is extraordinarily difficult, (if not impossible in most cases), to break out of said range and reach higher levels of income without job change, luck, or some other kind of significant intervention.

The situation can quickly become a symbolic heavy chain around a person’s career, continually dragging down their earning potential for years.  This negativity can also lead to a reduction in performance, which harms companies in general, even though they refuse to acknowledge the situation (more on that in Section III).

  •  Savings…..

There have been many statements published over the past few years by several financial “experts” and media outlets that people need to save more money.  However, the majority of these articles completely miss the boat.  Prices have risen exponentially across the board – rent, food, utilities, but wages have not been keeping pace at all.

So, quite bluntly – if people are not being paid enough to even make ends meet now, how can they ever save enough money for the future?

While this is a simple, common sense fact, the truth of it is still being utterly denied on virtually every level of the business & financial worlds, not to mention the media in general.

  • …and Loans

It is projected that the Millennial generation will become 50% of the workforce by the year 2020 (which is just 5 short years away at the time of this writing).Unfortunately, that generation is saddled with an additional problem – student loans that were necessary to receive a college education.

It’s no secret that the costs associated with college have risen exponentially over the past 20 years, meaning that many individuals have had no choice but to use large loans to finance their college needs.  The repayment terms of these loans coupled with being paid lower wages once in the workforce has created a vortex which continually drains the finances of the affected individuals, leaving them with minimal to zero disposable income.

As can be expected, this lessening discretionary income also continues to have a perpetual, serious, negative effect on the overall economy as less available money means less purchases, particularly delays in major purchases such as a home and/or a vehicle – further diminishing the net financial worth of many individuals.

Multiply this effect by the thousands of people currently affected for years to come, and the overall picture becomes very bleak, and thus requires action (more on that in section III).

  • 401k’s – A Compounding Issue

There have been many articles in the past year touting the virtues of the 401k plans offered by many companies.  These plans have become particularly popular among the Millennial generation.

Unfortunately, due to the lower wages that most individuals are receiving these days, this then in turn causes a smaller amount of money to be distributed into their respective 401k plans. However, the secondary effect that the media and various financial outlets have largely glossed over is that when less money is placed in a 401k, the slower it grows, and the less value it has upon disbursement.  Thus, individuals are in effect losing massive amounts of future capital by not being able to place more into a given plan on an ongoing basis.

Let’s demonstrate this with the following:

On October 23, 2014, the IRS announced the new limits to total 401k contribution (also known as a deferral) will be $18,000 of an individual’s salary/pay for the calendar year of 2015.  The plans offered by companies can also limit this further by stating that contributions cannot exceed a given percentage of total yearly pay, such as 10% or 15%.

For illustrative purposes, let’s use a contribution rate of 12% of an employee’s pre-tax pay/salary as a baseline as this contribution limit is popular among several large companies at the present time.

Under these guidelines, a salary of $50,000 per year would yield a maximum yearly contribution of $6,000:

50000 x 0.12 = 6000

Using the same parameters, a salary of $40,000 would only yield a maximum yearly contribution of $4,800:

40000 x 0.12 = 4800

As you can see the difference between contributions is $1,200 in this scenario.  In other cases in can be much higher.  As mentioned earlier, the problems with the wage gap have been at their peak continually since about 2006.  Using that year as a starting point then continuing to the present day, there are a total of 9 years (2006-2014).

Also knowing that wages have not really gone up for the majority of the workforce over all that time (and many have been stuck at their current pay rates for almost a decade), let’s take the example further.  So, this means that a person’s total maximum contributions at the lower salary rate above ($40,000/year) would be $43,200 after these past 9 years (4800 x 9).  A decent sum of money, yes.

However, when compared to being paid just $10,000 more in salary, the total value of the contribution would be $54,000.  So the difference in value between the total contributions after 9 years becomes $10,800.  While this may not seem like a lot of money to many individuals, there is a secondary effect to remember – return on investment (ROI) – which will boost the value even higher.

For ROI, lets continue to use these 2 different salary scenarios, and currently the average rate of return on a 401k is 3% to 7% .  So for this example let’s use the middle ground of 5% as the ROI in the calculation.

Using the first salary scenario, the ROI on the total contributions ($54,000) would be $2,700.

54000 x .05 = 2700

This then compares to the second scenario:

43200 x .05 = 2160

So the conclusion is that not only did the individual in the second scenario lose $10,800 in contributions over 9 years due to a lower salary, they also lost $540 in return on investment for a total loss of $11,340 over that time period.

Now for the big finale.  The average person works at least 30 years in their lifetime.  So if this loss is compounded over that time, the person will have lost about $35,000 from their portfolio over their career.  Then, when this is multiplied by let’s say just 250,000 workers as an example (just a small percentage of the workforce today), the loss to the economy as a whole becomes astronomical at about $8,750,000,000 over a 30 year period.  A staggering number to say the least, just from this one small sampling.

Of course, there will be variations in the number due to external factors like the stock market affecting fund performance, commodities, job changes for individuals, etc. But the point is well taken that the lack of being paid fair wages within the workforce over the past decades has led to a massive loss of economic prosperity for everyone that will stretch well into the retirement of multiple generations.

  • A Belief in Scarcity

This topic may sound a bit illogical to many people at first.  How can Corporate leaders & Managers believe that profits are scarce when record profits have been reported for the past several years across multiple industries?

Well, this stems from the fact that sub-consciously, most Managers and Executives have convinced themselves that profit is a scarce commodity that is only determined by the numbers on the bottom line.  Nothing else matters.  This is followed by a notion that they must then hoard as much of it as possible for themselves as they ultimately believe (due to their self-imposed illusion) that they may never get it again.  This fear then causes the cycle to repeat in a vicious circle year after year.

This is further exacerbated by the occurrence of record breaking profit years.  How so?  Well, record breaking years for profits are both a blessing and a curse.  Everyone is excited and happy at first from the achievement, and then the honeymoon is over.  This stems from the fact that a company’s leadership will then consider any future year that does not surpass the most recent record breaking year to be an absolute failure, and grounds for any kind of “cost cutting” that they see fit.

This has led to disastrous decisions for many companies as they try to desperately hold onto higher profit margins in any possible way.

III.   How can this be Corrected?

Like so many complex problems, the issue of the wage gap has no single, simple solution.  It will of course, require a significant amount of determination, and the fortitude of character to do what is right, not what is easy or popular.

  •   Breaking the Cycle

Here are just a few discussion points for consideration that could inspire to help move things forward.

1.  A Little Help Here…..

As mentioned previously, the Corporate world is addicted to the current climate of running people into the ground without remorse in order to maximize profits in the short term, while reinvesting next to nothing back into the workforce.

Unfortunately, as the old saying goes, a person cannot be helped unless they are ready to help themselves.  The same is true for the business world – until the top level realizes that they are leaving business on the table and sacrificing long term stability by focusing only on short term profits – the cycle will continue until it reaches a critical point, ultimately having a massive meltdown and damaging the economy for decades to come.

This realization can only occur once Executives and Management have honestly faced their own egos, fears, paranoia, and the vacuum of the world that they themselves created.  This can then pave the way for positive changes in thought, attitude, and approach across the board.

2.  One Step at a Time

If even one major company takes that first step – namely restoring wages to proper levels permanently – it would be the start of a major, positive domino effect that would reverberate throughout the entire economy.

Then other companies would have to keep up simply to attract and retain the best talent in order to remain competitive within the marketplace.  Plus, the company that started the trend will have gained very positive notoriety, and that kind of publicity cannot be bought.

So hopefully, some major corporations will find the courage to step forward soon and make this happen.

  • The Causes, Effects, Risks, and Benefits

1.  Minimal Pay = Minimal Play

One of the biggest benefits that is being overlooked by business is that due to their refusal to pay a proper level of wages, the talented individuals they need to work at their companies will not even consider their low ball offers most of the time.  Thus, these businesses are damaging their own futures with their focus on the short term only.

It is fair to say that most people in general want to do a good job, however even if a talented person does accept one of the current meager employment offers given to them, rest assured that their performance will not be nearly at the level that it could be as psychologically that individual will feel that their best efforts will not be rewarded, so they usually won’t bother.  Plus, they will ultimately leave for the first better opportunity that presents itself, taking all of their ability and knowledge with them, most likely to a competitor.

Of course, all this can be avoided by giving the person a fair wage and reward system to start, and the company in question could continue to benefit from that person’s talents for many years.

2.  More Confidence = A Brighter Economy

It’s a simple financial concept that the more money individuals have available, the more they can spend within the economy for both goods and services, and the more confident they are about these purchases in general, this continuing confidence then helps fuel future purchases as well.

This is evidenced by the Consumer Index and many other measurements used by various outlets to gauge the overall health of the economy.

So higher wages actually help companies help themselves as more money to spend means more revenue for the business world in general.  a simple concept that is utterly disregarded in today’s Corporate environment.

3.  Well Paid Employees = Better Attitudes

A secondary effect is that people are happier when they have more confidence.  Happy people translate to a happier workforce, which brings greater loyalty and subsequently greater productivity to the overall picture for business.

It’s the old school adage – If you take care of your people, they will take care of you.

Unfortunately this is a truth that the business world in general has completely forgotten, and needs to re-learn, quickly.

4.  Better Reputation

In this age of instant communication, social media, and other various technologies, how a company treats its employees will never be a secret.  Having a strong, upstanding reputation, fair pay, and an effective rewards program is critical if a business wants to attract and retain the high caliber talent that it needs to prosper into day’s highly competitive world.

Conclusion

Hopefully this article gave some new perspective on the state of wages within the business world today.  As always, I welcome constructive comments for discussion, as well as any questions.

Be well.

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