America's Next Business Leaders Can't Ignore Income Inequality

A new survey shows that it's on their minds.
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The new crop of America's business leaders aren't happy with the status quo of stagnant middle class wages.

In a new report released by Harvard Business School this month, 71 percent of alumni say the slowing growth that's plagued the middle class for decades, along with rising inequality, rising poverty or limited economic mobility, are problems that will affect their businesses.

Two-thirds of the 2,716 HBS grads who responded to the survey felt it was more important to address these four issues than to spur overall economic growth, suggesting that many business owners see significant benefits in shared economic health post-recession.

"It's a deeply optimistic finding if business leaders are engaged with a social conscience and business motivation," Jan Rivkin, a business administration professor and one of the study's co-authors, told HuffPost.

Inequality and limited economic growth funnel directly into weaker consumer demand and decreased investment in workforce skills. HBS survey respondents indicated that their businesses would likely suffer if a broad base of Americans aren't able to buy goods and develop the long-term skills needed to support businesses. In addition, economic stagnation could lead to backlash, as policymakers struggle to enact business-friendly policies, Rivkin said.

The U.S. has a long way to go before these economic disparities stabilize. The middle class is shrinking, which means more people are being pushed into the richest and poorest ends of the earnings ladder. Income inequality becomes even more stark as the wealthy continue to lead increasingly cushy lives of luxury: A U.C. Berkeley study found that the wealthiest 1 percent of the country took in 95 percent of all income gains between 2009 and 2012. Income mobility, meanwhile, has stayed flat for the last two decades.

All of this has huge implications for businesses. Middle-class families represent 60 percent of new businesses, according to a report from the Center for American Progress. These small firms produce half of non-farm private goods and services in the U.S. and have created two-thirds of net new jobs in the last 20 years. But as paychecks get lighter and middle class costs continue to soar, jobs are becoming more difficult to come by, while potential entrepreneurs are waiting longer to start their ventures in order to avoid economic failure.

A struggling middle class also means there isn't enough consumer demand to generate employment, Josh Bivens, director of research and policy at the Economic Policy Institute, told HuffPost. Further exacerbating the issue is that much of the income gains have been redistributed upwards.

Over half of respondents to the HBS survey were hopeful about the competitiveness of the U.S. economy, up from 29 percent from 2011. When it comes to boosting workers' compensation, however, they were torn: 36 percent expected that companies would lower wages and benefits, while 32 percent said firms would raise wages and benefits.

"When we're this far into economic recovery, it's a sobering finding," Rivkin said.

Predictions for who will reap the most income gains are bleak. While alums favored an even distribution among all Americans, they anticipated that the top 1 percent would rake in 41 percent of income gains, while the bottom 80 percent would receive 35 percent of income gains.

Business leaders' uncertainty about how to address economic realities isn't too surprising. It's difficult for a company to defend raising wages when shareholders expect the firm to remain competitive.

"Strategies that hinge on encouraging businesses to do something different with wages is going to be tough," Bivens said. "We need policy changes, rather than waiting on businesses to change one by one."

A higher minimum wage, overtime protections and greater worker power to join unions are among the federal policies that would drastically improve labor standards and grant workers more bargaining power. And it would give households resources to invest in the next generation of workers.

"If we were serious about a world-class workforce, then how you get there is give parents enough money to invest in kids' education," Bivens said.