Why Haven't Wages Kept Up?
The gap isn't a mystery. It's a mechanism with a date and a name.
TL;DR
Productivity rose 70% since 1973. Wages rose less than 10%. The gap has a precise origin: SEC Rule 10b-18, adopted November 17, 1982, created a safe harbor for stock buybacks. Between 1982 and 2020, corporations spent over $10 trillion buying back stock—money that went to shareholders instead of workers.
Productivity since 1973
+70%
Workers produce 70% more per hour
Wages since 1973
+10%
Workers earn barely more
Where did the other 60% go?
November 17, 1982
Everyone remembers what Reagan did to the air traffic controllers. August 1981. The signal that the era of labor power was over.
But that's not the mechanism that redirected trillions from workers to shareholders.
The real mechanism came fourteen months later. And no one remembers it.
SEC Rule 10b-18
Created a "safe harbor" for stock buybacks. Before this rule, buybacks were legally questionable as market manipulation.
Since the Securities Exchange Act of 1934, when a company uses its own money to buy its own shares, it creates artificial demand. The price rises not because the company became more valuable, but because there are fewer shares available.
Federal Register citation: 47 FR 53333
For nearly fifty years, this ambiguity kept buybacks rare. Companies that generated profits did something else with them:
- Invested in new equipment
- Built new factories
- Funded research
- Hired workers and trained them
- Raised wages
The money circulated through the productive economy because that was the only safe place for it to go.
Rule 10b-18 broke the cycle.
The Buyback Explosion
1980
$6.6B
Before 10b-18
2000
$200B
30x increase
2007-16
$4T
S&P 500 total
2018
$1T+
Single year
Between 2003 and 2012, S&P 500 companies spent:
54%
of net income on buybacks
37%
on dividends
91% of every dollar of profit went out the door.
This was not investment. This was disinvestment dressed as shareholder value.
The Incentive
The rule created the permission. But why did executives use it so aggressively?
The answer is compensation.
1965
CEO-to-worker pay ratio
20:1
Executives paid mostly in salary
2000
CEO-to-worker pay ratio
376:1
Executives paid in stock options
The CEO did not become seventeen times more talented. The rules changed.
The CEO's Choice
When the company generates a billion dollars in profit:
OPTION A: Invest
Build a factory. Takes 3-5 years to pay off. CEO might be retired by then. Stock price today won't reflect a factory profitable in 2035.
OPTION B: Buyback
Spend $200M on shares. Shares outstanding fall. EPS rises automatically. Stock price climbs. His options vest. His wealth increases.
The arithmetic is straightforward. The incentives are aligned. The extraction is structural.
The Harvest: Toys "R" Us
Founded in 1948. By the early 2000s, the largest toy retailer in the United States. The stores were destinations. Generations of American children experienced them as wonderlands.
The Buyout
KKR, Bain Capital, and Vornado acquire Toys "R" Us for $6.6 billion. Of the purchase price, $5 billion was debt. The company now owed $5 billion it hadn't owed before.
The Bleed
$400-517M
Annual debt payments
$470M
Fees collected by PE owners
Spending more on debt than on stores and website combined. Cash reserves fell from $2.2B to $301M.
The Liquidation
All stores closed. All 33,000 employees lost their jobs. No severance—the company in bankruptcy had no money.
$348M
To bankruptcy attorneys & consultants
$0
To workers (later: $600 each)
$348 million to professionals. Zero to the people who stocked the shelves.
Will AI Take Your Job?
The question isn't whether AI will eliminate tasks. It will.
The question is who captures the productivity gains.
Manufacturing (1980s-2000s)
- ✗ Productivity rose
- ✗ Corporate profits rose
- ✗ Stock prices rose
- ✗ Worker wages did not rise
Gains flowed through 10b-18 to shareholders
AI (2020s-?)
- → Productivity will rise
- → Corporate profits will rise
- → Stock prices will rise
- → Worker wages will ???
Same playbook. More powerful tool.
If the structures remain unchanged, AI productivity will flow to the same place. The workers displaced will bear the costs alone. The owners will capture the gains. The gap between productivity and wages will widen further.
The structure produces it. No one needs to intend extraction.
The mechanism doesn't require malice.
It requires you to not own the structure.
See the Labor Solution →Frequently Asked Questions
Why haven't wages kept up with productivity?
Since 1973, productivity rose 70% while wages rose less than 10%. The gap has a precise origin: SEC Rule 10b-18, adopted November 1982, created a safe harbor for stock buybacks. Corporations spent over $10 trillion on buybacks—money that went to shareholders instead of workers.
Will AI take my job?
The question isn't whether AI eliminates tasks—it's who captures the productivity gains. When manufacturing automated in the 1980s-2000s, workers got laid off while shareholders got buybacks. Same playbook, new technology. Without structural change, AI productivity flows to shareholders.
What is SEC Rule 10b-18?
Adopted November 17, 1982, Rule 10b-18 created a 'safe harbor' for stock buybacks. Before this rule, buybacks were legally questionable as market manipulation. After: immunity. Buybacks went from $6.6B in 1980 to $1T+ in 2018. The SEC has never brought a manipulation charge. Not once.
Why do CEOs make so much more than workers?
CEO-to-worker pay ratio went from 20:1 (1965) to 376:1 (2000). Section 162(m) in 1993 was meant to cap executive pay but exempted stock options. Companies shifted to stock-based compensation. Executives could boost EPS through buybacks, vest their options, and personally benefit.
What happened to Toys R Us?
Private equity bought it in 2005 for $6.6B—$5B was debt the company now owed. Annual debt payments consumed more than store investments. Cash reserves dropped from $2.2B to $301M. In 2018: liquidation. 33,000 workers lost jobs with no severance. Bankruptcy lawyers got $348M. Workers got $600 each—eventually.
