Being an American worker with no stake in the equity market has, by one measure at least, seldom been costlier.
Even though wages are improving, the rate of growth in what companies pay employees pales in comparison to what stocks have handed investors over the last six years. In fact, with equities rising 20 percent annually and wages up 2 percent, the gap has never been wider in any bull market since 1966.
While comparing salary and stock returns has its imperfections, the figures are revealing in a country where six years of cost cuts helped double the Standard & Poor’s 500’s earnings and add $12 trillion to shares. The divergence is a concern when Federal Reserve data show the percentage of families owning stock fell to 48.8 percent in 2013 from 53.2 percent in 2007.
“Earnings have been so strong in part because wage growth has been so weak,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in Philadelphia. “The benefit of any productivity growth is going right to corporate earnings and to shareholders.”
To be sure, record stock prices have helped enrich U.S. households, with net worth climbing to a record $82.9 trillion in the fourth quarter. But it’s a benefit that’s not broadly shared. Among the worst-paid Americans, less than 30 percent of families invest in stocks, compared with 92 percent for the richest, the Fed’s September survey shows.
Pay Increase
On the salary side, there are signs purse strings are loosening. Hourly pay was a silver lining in Friday’s monthly jobs report, rising by 0.3 percent from the prior month and 2.1 percent from a year earlier.
Wal-Mart Stores Inc., its stock up five straight years, announced a pay increase in February for 500,000 of its hourly workers. T.J. Maxx, Marshalls and other chains owned by TJX Cos. matched it a week later. On April 1, McDonald’s Corp. said it will raise pay at company-owned locations to at least $1 more than the local minimum wage.
To Michael Shaoul, chief executive officer of Marketfield Asset Management, the gap between wages and stocks since 2009 is partly a statistical illusion reflecting the severity of the bear market and how little wages fell during the credit crisis. Comparing the respective growth rates since 2000 or 2007 shows pay rising more closely with shares.
“A lot of this depends on starting points,” Shaoul, who helps oversee $10 billion at Marketfield, said by phone in New York. “Time is the main ingredient missing with regards to this wage cycle. Many factors are coming back into the employees’ favor.”