Wages and Economic Inequality: Is Change Coming?

by Vault Careers | April 04, 2011

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The past few weeks have seen an increasing media focus on the issue of wealth and income distribution throughout society, With candidates already ramping up efforts for the 2012 election, it seems certain that some of the questions being raised right now could come to define at least a portion of the campaign. And there's every chance that could lead to a renewed focus on compensation levels—especially for executives.

Consider the following examples:

Story 1: A New York Times report that, despite the recent uptick in job creation, finds "many of the the jobs being added in retail, hospitality and home health care […] are unlikely to pay enough for workers to cover the cost of fundamentals like housing, utilities, food, health care, transportation and, in the case of working parents, child care. "

Story 2: A ThinkProgress piece titled "In 2010, CEO Pay Went Up 27% While Worker Pay Went Up 2%." It also points out that "Median CEO pay last year was $9 million, the highest since 2007. The median CEO bonus was $2.2 million."

What gives?

The most likely explanation: that CEOs are being rewarded for the profits they're delivering—much of which are attributable to cost savings like reduced worker costs (salary and benefit reductions, and layoffs). As Slate's Annie Lowrey pointed out last Monday:

"According to the Bureau of Economic Analysis, real corporate profits neared an all-time high in the last three months of 2010, with companies raking in an annualized $1.68 trillion in pre-tax operating profits. (After tax, that comes to $1.25 trillion, about equal to the GDP of India.)"

(No word on whether that after-tax figure is before or after GE's rebate…)

Unfortunately, we're stuck in a position where what's best for companies in the short-term (cash conservation) doesn't seem to mesh with the needs of wider elements of society (more jobs, livable incomes). Consider this chart from the New York Times' Economix blog last week. It shows levels of income disparity between subsets of the top 10 percent of earners, and the rest of the country.

share of us income chart
Chart Source: The New York Times

Two things to note: first, that the chart ends in 2008—what are the chances that the gap between the top and bottom has narrowed since then, given the first two stories mentioned above? And, second: the last time the gap between top and bottom was as wide as seen in the last decade was in the years leading up to the Great Depression. Even if that's just a coincidence, it's an unsettling one.

Clearly, there are some major tests ahead for policy makers and executives regarding salary and the concept of economic fairness—and they won’t be made any easier by a report released last week that raised major question marks over executive salaries at Fannie Mae and Freddie Mac after the two firms had been bailed out by the government.

According to Reuters "The heads of Fannie Mae and Freddie Mac were paid a total of $17.1 million in 2009 and 2010 -- the two full years of government ownership."

"The top six executives at the housing giants were paid $35.4 million over the two years, according to the report that was posted on the agency's website."

If that sampling of recent news items—and what appears to be a resurgent taste for accountability—is anything to go by, this is an issue that has the potential to dominate the national conversation for the foreseeable future. Whether that will lead to a boost in the average worker's paycheck? That's another question entirely—and one we'd love you to weigh in on in the comments field below.

More:

Slate: More Profits, Fewer Jobs

Economix: : Inequality is Most Extreme in Wealth, Not Income

Reuters: Report critical of pay practices at Fannie Mae, Freddie Mac

ThinkProgress: In 2010, CEO Pay Went Up 27% While Worker Pay Went Up 2%

The New York Times: Many Low-Wage Jobs Seen as Failing to Meet Basic Needs

--Phil Stott, Vault.com

Filed Under: Salary & Benefits

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