The COVID-19 pandemic saw lower income populations around the world disproportionately affected in terms of financial impact while the amount of household wealth owned by the ultra-rich grew significantly. In a similar vein — showcasing wealth inequality between groups — shareholder wealth soared throughout the pandemic while workers were left behind, according to recent data released by the Brookings Institution.
Brookings researchers analyzed the pay practices and financial outcomes of 22 of the largest American companies across various sectors such as retail, entertainment, and hospitality. Some of these names included Amazon (AMZN), Disney (DIS), McDonald’s (MCD), and Hilton (HLT). These 22 companies employ a total of 7 million workers, more than half of whom are nonwhite.
Brookings found that the wage gains to workers were far less in comparison to gains by shareholders, including executives and billionaires. According to the report, shareholders of the 22 companies grew $1.5 trillion richer, while the 7 million workers received just $27 billion in additional pay, or fewer than 2% of the shareholder gains.
“Our report found that financial gains overwhelmingly benefitted shareholders, while workers benefited only minimally,” Molly Kinder, Brookings fellow and the lead author of the report, told Yahoo Finance. “These lopsided outcomes reflect a decades-long trend created by a power imbalance. Labor unions play a critical role in correcting this imbalance. By giving workers greater power to negotiate for better pay and benefits, labor unions help ensure that workers — and not just shareholders and executives — benefit from company success.”
On average, unionized workers are paid over 11% more than their nonunionized counterparts, according to a study conducted by the Economic Policy Institute (EPI). Kinder noted that the difference in wages between unionized and non-union drivers was evident in their analysis for companies like Amazon and FedEx (FDX).
And while some companies may offer equity compensation programs to frontline employees — Starbucks’ (SBUX) “bean stock” program, for instance, grants eligible partners Bean Stock Restricted Stock Units (RSUs) which are converted into shares following a two-year vesting period — it is much less common for frontline workers to receive equity than middle managers or executives. Therefore, frontline workers often have limited opportunity to participate in their companies’ growth.
Katie Bach, nonresident senior fellow at Brookings, advises workers to take advantage of opportunities where they are able to access equity at a “significantly discounted price,” especially if the company has been performing well.
“But in general, these workers earn so little that they don’t have the ability to save/invest — they’re spending every dollar on rent, health care, transport, childcare, and so forth,” Bach told Yahoo Finance. “So for most of them, a choice between equity and cash wouldn’t be much of a choice — they need every penny they earn, and then some.”
‘High wages actually can be good for business’
Ultimately, Bach believes that corporations stand to benefit by paying their employees higher wages. She said that higher wages allow companies to pull talent from a larger pool as well as reduce employee turnover, saving them millions annually.
“This is because high turnover and the inability to hire lead to understaffing, which leads to inefficient operations and lost sales,” Bach said. “And turnover itself is very expensive; replacing one frontline worker can cost a company $3,000-5,000”
She pointed to Costco’s (COST) compensation model as a good example of a company that combines “high wages with a focus on making the best use of employee time.” Costco raised its minimum wage to $17 late last year, which affords it higher employee retention, helps to improve processes, and allows it to deliver quality customer service, according to Bach.
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV