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The Conference Board's Bart Van Ark: Income Inequality Hurts Economy

Conference Board Income Inequality

First Posted: 01/11/12 12:50 PM ET Updated: 01/11/12 01:14 PM ET

A major business membership group warns that increasing income inequality in the United States is stifling economic growth.

Many multinational companies are underpaying workers, said Bart van Ark, the Conference Board's chief economist, in an interview with The Huffington Post on Tuesday. He pointed to armloads of data from a December Conference Board report on the topic.

Paying good wages is "a very sensible economic growth model," van Ark explained, because workers then invest in training and education, which drive up returns for their employers, and buy products and services, which helps sustain the consumer economy. But in the United States today, "we are seeing a little bit of the opposite," he said.

Moreover, van Ark noted, "We have to blame ourselves for letting this go on for too long."

Van Ark's concerns are hardly news to the many Americans who have latched on to the rallying cries of the Occupy Wall Street movement and haven't seen their incomes recover from the pain of the Great Recession. Yet it's unusual for any member of the business community to come out in favor of higher wages. The Conference Board, founded in 1916 to provide economic and business knowledge to its member companies -- which include McKinsey, Deutsche Bank, State Farm Insurance Cos., and half of all Fortune 500 companies -- is a nonpartisan organization by tradition.

Van Ark said that many companies are not paying employees what they deserve to the companies' own detriment. While businesses that invest in their workers may have higher labor costs in the short term, he said, they reap a critical competitive advantage over the long term. When some workers receive lower wages than they deserve, they do not develop their skills or work as hard, which pushes down corporate revenues. Productivity growth in the United States was just 0.6 percent in 2011, according to the Conference Board. That's half of productivity growth in Europe, which has been mired in a government debt crisis.

"A substantial part of American jobs are so badly rewarded that the returns are insufficient to even pay for the products and services those workers together produce," the Conference Board report said.

The outsourcing of jobs and the development of financial products that have burdened many Americans with debt have also played a role in exacerbating income inequality, van Ark said. The real median income of households plunged 9.8 percent between December 2007 and June 2011, according to private sector estimates cited by the Conference Board report.

Since the mid-1990s, there has been a "hollowing out" of the middle class largely because of technological changes, according to van Ark. Computers have taken over many routine administrative tasks. While the wages of the top 20 percent have spiked since the late '90s, according to the Conference Board report, the wages of the bottom 50 percent have largely stagnated.

The Conference Board report points out that growing income inequality in the U.S. dates back to the 1970s: While the top 1 percent's average real pretax income spiked 4.4 percent per year between 1979 and 2007, the bottom 99 percent's average real income grew just 0.6 percent.

"We have the most productive workers in the world," van Ark said, "and if we're not paying them accordingly in the medium term, we're going to have trouble."

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