Much has been made about the rising divide between rich and the middle class from the 1970s to the present day. Wages for the rich has been increasing in real terms (ignoring inflation) while wages for the middle and working class have been stagnant. Therefore the wealth disparity in the US has been widening. There have been many explanations for this. Those on the left like to bemoan this result as the product of the decline of unions and decreasing tax rates on the higher income brackets. Those on the right like to explain it away by stating that compensation among all social strata has increased but because of the rising cost of health insurance, wages have been stagnant for the middle and working class.
I would like to propose a new theory, one based on the leverage of an occupation.
I define leverage as the ability to multiply the effects of your work. For example, someone who mows lawns has a leverage of 1 (aka low leverage) because when that person mows the lawn, only the lawn he/she mows is mowed. A person who has a high leverage job would be a engineer whose design of a structure could be replicated multiple times without the need for much additional work. The theory is that professions with higher leverage have increased wages as their efforts can convey greater and greater economic benefit and that non-leverage positions have stagnant wages because their economic efforts cannot be multiplied easily.
The fact is, rich people professions can be increasingly leveraged with the new explosion in globalization and consulting. Otherwise stated, higher leveraged positions are now capable of having their efforts multiplied more easily. Lawyers, engineers, business executives, people in finance, and most other high compensation jobs have high leverage positions. When business executives make a decision that improves the practices of a business, the decision can be magnified by the employees without much more effort from the executive. These practices could also be sold to another business, further increasing the economic benefit and the wages to originator of the practice. When a lawyer designs an innovative corporate structure, that can be used over and over again without a lot more work. Basically, this means that the production from these highly compensated positions produces a high level of benefit for the amount of work done, since the work product can be easily replicated by lesser skilled individuals and produce more economic benefit. With the increased globalization in the economy and the vast increasing of "consulting" (that shares and educates others on best practices), business/law/engineering/financial innovations are becoming more and more widespread as there is more information sharing. Therefore, an individual innovation can have massive economic benefit which can be monetized for the innovator in the form of higher and higher wages.
Working class positions don't have this luxury. When a factory worker makes a car, the economic benefit begins and ends at the car. The factory worker's efforts cannot be multiplied in the same way. When someone bags your groceries, as I did as a teenager, the economic benefit begins and ends with the groceries being put into paper or plastic. Working class positions simply can't be leveraged and therefore, their economic output will not be enough to constantly justify real increases in wages.
This problem is related to the constant gripes about the relative differences between wages of professional sports players and doctors/teachers. The average salaries for players in the popular sports leagues (NFL, NBA, MLB, NHL) is usually way more than the average salary for doctors and teachers. While this might not seem very fair at first, it fits with my leverage theory.
Professional ball players' actions have enormous impacts on the feelings, pride, and joy of all of their team's supporters. Doctors and teachers do not have this. When a football player scores the game winning touchdown or run or hits the game winning shot, he lifts the spirit of an entire major metropolitan area. He conveys a major benefit to society by lifting up the spirits of people and can demand higher wages for his efforts. When a doctor saves a life, it is super great but does not uplift an entire metropolitan area usually.
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