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Saturday, September 7, 2013

Bank Profits Hit Record as Wages Stagnate in the U.S.: A Tale of Two Cities

In the United States, executives have been compensated much more than their own non-supervisory workers. This has been so in not only absolute terms, but also relative to other countries. As a first step to getting to an explanation, the sheer magnitude of the gap in the U.S. must be digested.

          The magnitude of the difference between the U.S. and all the other countries listed here suggests that the ratio of 475 to 1 is artificial rather than natural.  Moreover, the different ratios point to differences in underlying cultural values. Image Source: www.politifact.com

According to the Associated Press, American “banks earned more from April through June [2013] than during any quarter on record, aided by a steep drop in losses from bad loans.”[1] The Federal Deposit Insurance Corp. reported that the banking industry earned $42.2 billion in that quarter, up 23 percent from the second quarter of 2012. Banks' losses on loans decreased 30.7% from a year earlier to $14.2 billion, the lowest in six years, and lending increased 1 percent from the first quarter. Losses on loans fell to the lowest level since the third quarter of 2007. Home equity loans showed the greatest declines in losses.[2]

CNNMoney reported that the nation’s biggest banks were expected to hand out more in compensation (including $23 billion in bonuses) in 2013 than they had done in 2009. The total compensation of CEOs had increased by 876 percent between 1978 and 2012.[3] The FDIC report shows that the largest banks continued to drive the industry's profits while smaller institutions have struggled. Banks with assets exceeding $10 billion, including Bank of AmericaCorp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo, accounted for about 82 percent of the industry's earnings in the second quarter of 2013. Most of them had recovered in part from federal bailout money and record-low borrowing rates—neither one warranting higher compensation. For instance, the Fed’s bond purchases had been keeping long-term interest rates low.

On the very same day the FDIC announced the record profits, fast food workers across the U.S. walked off the job to protest low wages and poor treatment. Roughly “200 protesters including employees from McDonald's and Wal-Mart and members of the Chicago Teachers Union and the Service Employees International Union gathered outside the Rock N' Roll in downtown Chicago. Sixty cities joined in with their own protests. "It's not livable," Tyree Johnson, who said he's been a McDonald's employee for 21 years, charged. "I've been dedicated to McDonald's for the past 21 years. I still make $8 an hour. "I'm tired of choosing between paying rent and eating," said worker Tamara Best-Watkins to the crowd. "I'm tired of choosing between taking my daughter out and paying rent." Speaking at the protest, U.S. House representative Jan Schakowsky (D-Ill.) noted that McDonald’s CEO “makes in two or three hours at work what his employees make in a year.”[4]

With the federal minimum wage of $7.25 per hour having remained unchanged since 2009,  the demonstrators demanded a $15-per-hour minimum wage and protections against retaliation for joining a union.[6]  Hourly wages for nonfarm workers had fallen 3.8 percent in the first quarter of 2013; that drop surpassed any other since the Bureau of Labor Statistics began keeping track of wages in 1947.[7] Hourly worker pay had risen just 1.9 percent in 2012, even as the consumer price index increased 1.8 percent. That was the third-weakest annual increase in hourly pay since 1947, topping only the 1.4 percent gain in 2009 and a 1.8 percent gain in 1994.[8]

Jean-Jacques Rousseau, an eighteenth-century European philosopher, would label such fiscal inequality as artificial, rather than natural. Even though artificial inequalities are not hard-wired into human nature, we may have made them virtually impossible to expunge from the American political economy. Perhaps just viewing the widening gap as artificial could be a first step back from the brink of social instability and maybe even revolution, in spite of the odds established and enforced by the military-industrial complex.


1. The Associated Press, “Bank Profits Hit Record $42.2 Billion in Second Quarter,” The Huffington Post, August 29, 2013.
2. Ibid.
3. Ibid.
4. Kim Bellware, “Fast Food Workers Protest in Chicago for Living Wages, Better Treatment Amid Nationwide Strikes,” The Huffington Post, August 29, 2013.
5. The Associated Press, “Bank Profits Hit Record $42.2 Billion in Second Quarter,” The Huffington Post, August 29, 2013.
6. Mark Gongloff, “U.S. Suffers Biggest Pay Drop on Record, as Workers Squeezed Tighter,” The Huffington Post, June 5, 2013.
7. The Associated Press, “Bank Profits Hit Record $42.2 Billion in Second Quarter,” The Huffington Post, August 29, 2013.
8. Mark Gongloff, “U.S. Suffers Biggest Pay Drop on Record, as Workers Squeezed Tighter,” The Huffington Post, June 5, 2013.