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Originally Posted by Undertoad
Why use wages and not personal income for the comparison? Almost everyone in the country, from rich to poor, receives non-wage income.
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Though that may be qualitatively true, non-wage income is minuscule to most Americans. Most Americans derive nearly all their income from wages. It's only those at the top who receive enough rent and dividend income to make a significant difference. As a result, the use of average income overstates what the average American actually receives.
Most working Americans with IRAs or 401Ks receive 0 income annually from them. And that's where most of middle America's so-called stock market investment is. Outside of that, the majority of Americans have little in the way of investment income. Interest on bank or savings deposits contributes only a trickle to most people's income.
Thus the bulk of most Americans spendable income comes from wages. It is these wages (supplemented by borrowing) that finance the necessary consumer spending to keep our economy alive. If wages continue to stagnate, and borrowing declines, that necessary consumer spending will also decline. Purchase of America's production will decline as a result. This will reduce the demand for production and the demand for labor to provide that production. If demand for labor declines, so will employment and wages. As a result, aggregate worker/consumer income will decline even further. There will be progressively less spendable consumer wealth, resulting in less spending & demand for goods, and still less demand for the labor to produce goods.