S&P 500 vs Median Wages
Both indexed to 100 in 1970, showing divergence between financial assets and worker pay
“Stock markets decoupled from the real economy after 1971, benefiting the wealthy while workers fell behind.”
Since 1970, the S&P 500 has risen ~6,400% while median wages have risen ~250% in nominal terms. The divergence accelerated in the 1990s with the tech boom and again after 2009 with quantitative easing. Financial asset growth has vastly outpaced wage growth.
Perspectives
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Financial asset growth has genuinely outpaced wage growth
The divergence is real and reflects monetary policy, globalization, and the shift from labor to capital income. But the chart overstates the divide because stocks benefit from global earnings.
There is a genuine and growing divide between financial asset returns and wage growth. Monetary policy since 2008 especially has inflated financial assets while doing little for wages. The result is a wealth divide between asset owners and wage earners that both monetary and fiscal policy could address.
Causal Factors
Monetary policy & quantitative easing
30%Fed rate cuts and QE directly inflated financial assets. The Fed's balance sheet grew from $900B to $9T from 2008-2022, much of it flowing into equity markets.
Globalization suppressing wages
25%Global labor competition suppressed wage growth while enabling corporate profit growth through cheaper production costs, benefiting shareholders.
Share buybacks & financial engineering
20%Companies spent $7T+ on buybacks since 2010, boosting stock prices without corresponding investment in workers or productivity.
Concentrated stock ownership
15%The top 10% own 87% of all stocks. Rising markets disproportionately benefit the wealthy, widening the gap between asset owners and wage earners.
Declining labor share of income
10%Labor's share of national income fell from ~65% to ~58%, with the difference flowing to corporate profits and thus to shareholders.
Data Source
Key Events
Nixon Shock
Dollar decoupled from gold; financial markets begin long-term divergence from wages
Greenspan Put begins
Fed begins pattern of cutting rates to support markets after crashes
Dot-com bubble
Tech mania pushes S&P to 1,469; median wages barely move
Quantitative easing
Fed buys trillions in bonds, pushing investors into stocks
COVID response
Unprecedented fiscal and monetary stimulus sends markets to new highs