A startling statistic about Wall Street's perks
In the increasingly divided world of the haves and have-nots, nothing may better illustrate the widening gulf than Wall Street bonuses.
The financial industry handed out $28.5 billion in bonuses last year, or an average payout of $172,860 to bankers and other employees, according to an estimate from the Office of the New York State Comptroller. That means bonuses are back to levels last seen before the financial crisis, the comptroller said.
If those billions had been spread across the lowest-paid workers in the country, the 1 million Americans making the federal minimum wage of $7.25 per hour would have seen their pay double, according to an analysis by Sarah Anderson, the director of the Global Economy Project at the Institute for Policy Studies.
Perhaps even more striking is the bonus pool represents a 3 percent increase from 2013, even though pre-tax operations of New York Stock Exchange member firms saw profits decline by almost 5 percent last year.
And, while the top 1 percent of earners reap bigger rewards even when their companies' profits decline, low-paid and middle-class workers have endured sluggish wages despite higher productivity.
"The flourishing of the Wall Street bonus culture while worker wages are stagnating is clearly a sign of perverse priorities in Washington," Anderson said in a statement.
While annual Wall Street bonuses are a boon to New York's luxury industries, riches for the 1 percent don't always translate to commensurate benefits to the economy. That's because the wealthy tend to save more, with only 39 cents of every dollar earned by a wealthy American adding to gross domestic product, the IPS study noted.
Lower-income Americans spend more of their income on goods and services, meaning that every dollar earned by a low-wage worker puts more back into the economy, IPS noted. The so-called ripple effect, or how an individual's earnings extend throughout the economy, would be dramatic: IPS estimates the $28.5 billion in bonuses would translate into adding $34.5 billion to the GDP if the funds had gone to low-wage workers.
Given that many Wall Street workers will sock away a portion of their bonuses, the ripple effect will be much more muted, with only $11 billion added to the GDP.
Another less-than-positive aspect is that bonuses reaffirm the cycle of risk-taking on Wall Street, encouraging traders to swing for the fences in the hopes of scoring big and taking home a juicy bonus. At the same time, America is still dealing with a hang-over from the financial crisis. Last year, Wall Street's non-compensation expenses -- including legal settlements -- rose to $62.8 billion last year, up from an average of about $40 billion during the eight years before the financial crisis.
More financial reforms are needed to separate bonuses from the incentive to take on outsized risk, the IPS report said. One section of the Dodd-Frank law that would prohibit financial pay packages from encouraging "inappropriate risks" hasn't been implemented yet, the study said.