It may be hard to believe but there was a time, almost 25 years ago, when Wall Street and Main Street weren't so far apart -- at least when it came to the average worker's salary and the average financial industry employee's annual bonus. Back in 1985, the average annual salary for all workers across the country was actually a bit higher than the average bonus ($19,000 to $13,970). (Note: these numbers are not adjusted for inflation)
How times have changed -- while the average Wall Street bonus soared almost 14 times higher (by 2006), the average worker's salary has essentially been stagnant sine the mid-1980s. And that increasing disparity seems fine, according to a Goldman Sachs adviser, who said on Tuesday that "we have to tolerate the inequality," reports Bloomberg News:
A Goldman Sachs International adviser defended compensation in the finance industry as his company plans a near-record year for pay, saying the spending will help boost the economy. "We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all," Brian Griffiths, who was a special adviser to former British Prime Minister Margaret Thatcher, said yesterday at a panel discussion hosted by St. Paul's Cathedral in London.
WATCH (around the 2:50 mark):
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Though bonuses slipped sharply in 2008 amid the financial crisis, they're rebounding this year and Wall Street firms are set to pay out record amounts to their employees, which is sure to increase the disparity.
Treasury Secretary Tim Geithner recently told reporters that banks will be making "significant changes" to the way they pay their employees, and called bonuses being paid out by bailed-out firms "deeply offensive."
To get a sense of the disparity between Wall Street and Main Street, take a look at this chart tracking the average bonus and the average annual salary since 1985:
Banks have been castigated for returning to pre-crisis pay packages -- White House spokesman Robert Gibbs recently told reporters, "Pay on Wall Street can't return to the speculative era that we saw last, specifically right before the economic collapse..."
Disturbingly, the chart shows some similarities to some of the data we've seen on income inequality. University of California, Berkeley's Emmanuel Saez put together a scathing report on this topic earlier this year. The share of total U.S. income made up by the top 10 percent of earners, according to Saez's figures, was around 35 percent in 1987. By 2007, the top U.S. earners would capture almost 50 percent of total U.S. income.
Some important caveats: the information in the chart, taken from the U.S. Bureau Of Labor Statistics and the New York State Comptroller's office, includes average bonuses for workers classified as securities industry professionals. Using an average bonus figure for Wall Street workers is somewhat problematic. For one, not every Wall Street employee gets the same size bonus -- some top executives get vast sums that can distort the average bonus figure. Also, not every financial service professional is even eligible for a bonus. It's hard to make direct comparisons between the bonus pool at Goldman Sachs, which has a relatively small number of employees, and an immense company like Bank Of America, which has a large retail banking presence.