How Did the Top 1 Percent Get So Rich?

November 20, 2011 – 10:43 pm

There has been a lot of conversation in the news recently about the Occupy Wall Street protests and the idea of the 1 percent (i.e. the wealthiest 1 percent of Americans at the very top of the income scale) and the 99 percent (i.e.the rest of America). One of the puzzling things about the past few years of economic turmoil and recession is that even though the economy has stalled, struggled and stagnated, the “rich are getting richer” than ever before.

According to an article in Foreign Affairs, “In 2009, the average income of the top five percent of earners went up, while on average everyone elses income went down… The share of total income going to the top one percent has increased from roughly eight percent in the 1960s to more than 20 percent today.”

There are many possible explanations and factors behind the rise in wealth of the top 1 percent, but one way to look at it is that the U.S. economy is diverting its biggest share of rewards to people who already own the biggest share of the economy. The top 1 percent of income earners tend to have the most invested in the stock market, own the biggest shares of profitable companies, and gain the biggest portion of profits from new technologies, efficiencies and cost-savings.

As new technologies create increasing productivity and globalization opens new markets and drives down the cost of labor, the biggest share of these gains tends to go to people who own the biggest shares of the companies that benefit the most from these changes.

In the labor market, the biggest pay raises go to the people with the hardest-to-find skills. The information technology revolution has created hugely lucrative opportunities for entrepreneurs who can create companies to meet the emerging needs of new markets – think of the iPhone and the App Store – five years ago, those words did not exist. There are still high-paying jobs for people with professional credentials and specialized technical skills.

Unfortunately, even while the past few years of technological innovation have created big opportunities at the top of the income scale, they have made life more difficult for people who work at the lower-income levels of the economy. Many jobs in manufacturing, construction, retail and administrative work (that did not require a college degree but still provided a good middle-class income) have disappeared. At a time when the top 1 percent are being more richly rewarded than ever, many of the bottom 99 percent (especially the bottom 20 percent) are feeling squeezed, stressed and shut out of the economy.

Most of us will never reach the top 1 percent of America’s income brackets, but there are still things we can do to improve our immediate financial situation:

Live within your means.

In tough economic times, it’s more important than ever to spend less than you earn. Build an emergency fund with at least six months of living expenses (to tide you over in case of a job loss). Pay down your debt, especially high interest credit card debt. No matter how much (or how little) you earn, we can all find ways to squeeze some extra money out of our monthly budget and deposit that money into a savings account.

Improve your job skills.

One fortunate side effect of the recession and millions of lost jobs is that it has motivated millions of Americans to go back to school to retrain and prepare for new careers in different job fields. For example, one of my old neighbors in my hometown is a former factory worker who is now going through training to become certified as a medical X-ray technician. Many community colleges have received a boom in applications from students of all ages who are investing in education to put themselves in a better position in the job market.

Keep adapting and innovating.

Whether you have a college degree or a professional degree, or you’re looking for a job or are comfortably employed, we all need to stay current on the latest trends in our career fields. Stay energized. Keep learning. Keep seeking out new ideas and finding new things that you love to learn about (and share with others). Staying flexible, adaptable and engaged with the subject matter of your career field is the best way to continue to stay “in-demand” and earning a good living.

There’s still a lot of money out there for the other 99 percent of us you just have to focus on what you can control and seek out the opportunities that exist.

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