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Today in inequality reading: What's your CEO making?

The AFL-CIO has launched a new website focused on CEO pay:
The site, 2011 Executive Paywatch, notes that total compensation for C.E.O.’s averaged $11.4 million in 2010, up 23 percent from the previous year, based on the most recent pay data for 299 major companies.

The Web site notes that the C.E.O.’s at those 299 companies received a combined total of $3.4 billion in pay in 2010, enough to support 102,325 jobs paying the median wage.

The Web site notes that chief executives’ compensation is 343 times the median pay — $33,190 — of American workers. It adds that the $11.4 million average for C.E.O.’s is 28 times the pay of President Obama, 213 time the median pay of police officers, 225 times teacher pay, 252 times firefighter pay, and 753 times the pay of the minimum-wage worker.
Did you do 23 percent better in 2010 than 2009? I sure didn't. Did your company add that much value to its bottom line? Maybe, maybe not.

I don't doubt that CEOs create value for their companies, and they're always going to make more money than rank-and-file workers. But they didn't used to outstrip the pay of their workers by quite so much, and it's hard for me to find a good economic reason why that's so now. My free-market friends will roll their eyes, but I think oligarchic brand of capitalism is--and probably should be--simply unsustainable.

Why? Because CEO pay continues to skyrocket when stuff like this is happening to regular American families:
7. Employer-provided health insurance benefits continue to disappear. The share of people with employer-provided health insurance dropped from 64.2 percent in 2000 to 55.8 percent in 2009. This is the lowest share since 1987 when the Census started to track these data.

8. Family incomes drop sharply in the recession. Median inflation-adjusted household income fell 3.6 percent in 2008 and by another 0.7 percent in 2009. It stood at $49,777 in 2009, its lowest level in inflation-adjusted dollars since 1997. White family income stood at $54,461, compared to African-American family income, which was $32,584, or 59.8 percent of white income. Hispanic family income was $38,039 in 2009, or 69.8 percent of white income.

9. Poverty continues to rise. The poverty rate stood at 14.3 percent in 2009—its highest rate since 1994.
You can't blame this on Barack Obama. The employer benefits were dropping in 2009--before ObamaCare passed. I guess we can argue about the stimulus in regards to the other numbers, but count me as somebody who suspects things would've been much worse without it.

That's not the point. The point is that a society chooses to organize itself along free-market lines because a free market helps the vast majority of citizens sustain themselves. For most of American history--and there have been exceptions--that has been the case. If the system only works at the top, if the rest of us have only bread and circuses to console us, then trouble is coming ... and all the Ayn Rand movies in the world won't change that. Defenders of the free market should concern themselves with inequality issues because that's probably how they can best defend free markets.

Comments

Rick Henderson said…
Joel, you're issuing a challenge that free-marketeers may never address because we disagree on the essential problem. This may be a bit of a caricature, but when the left looks at income inequality, their pat remedy seems to be: How can we penalize those at the top and redistribute that wealth to those on the bottom?

When I see chronic poverty, I ask, how can we develop policies that help those who can be self-sufficient do better and continually improve?

I'm not so concerned with those at the top because penalizing them provides only temporary relief for those at the bottom (Thatcher's "The problem with socialism is that eventually you run out of other people's money" or "Give a man a fish and he'll eat for a day; teach him to fish and he'll eat for a lifetime").

You cannot continue to take from the top and give to the bottom forever if that's the extent of your policy agenda.

Or for a lighter take on this, consider the Dennis Moore sketch from Monty Python's Flying Circus.
Joel said…
Rick: I don't know that free-marketeers really consider inequality a problem at all. I've seen Ross and Reihan address the issue, but they seem ... out of the mainstream of conservatism when they do so.

I'm fine with working on helping folks on the bottom do better and continually improve. I have no need to penalize people at the top. But it appears from my vantage point that the system is set up to reward the folks at the top and disregard folks at the bottom. And most attempts to address the matter are shouted down with cries of "socialism."
Rick Henderson said…
I fully agree. The current system does not reward people at the bottom. The causes of that are legendary: inadequate public education, a regulatory state that discourages if not outlaws entry-level entrepreneurship, a regressive tax structure.

It's also the case that our current immigration system worsens income inequality in that it is much easier for uneducated and unskilled people to reside in America than it is for highly educated professionals. (The system also tends to depress wages for low-skilled citizens.) I'd like to see a much more generous legal immigration policy targeting skilled individuals and stronger restrictions against illegal immigrants. But that would exacerbate income inequality. And, in this case, I'd support it.
Notorious Ph.D. said…
According to what I can access, my CEO's pay for 2010 was actually down 2.5% from 2009. Mine went down about 2%. I'll admit that these figures did surprise me.

On the other hand, his 2.5% pay decrease is equal to one-fourth my annual salary in total. And he also gets a house and an airplane.
Notorious Ph.D. said…
And the surprises never cease: Can it be that I actually find myself agreeing with a couple of Rick's points? Granted, they're the ones closest to the traditional left, but still -- that's kind of nice to have some common ground there.
KhabaLox said…
"a regulatory state that discourages if not outlaws entry-level entrepreneurship, "

Rick, in other places you've said that our society has high income mobility. If not for the ability of entrepreneurs to start from nothing and succeed (like the owners of my company), how do you explain the (alleged ;) high income mobility?

If income mobility comes in large part from entry level entrepreneurship and education, but we don't have that, how do we have the income mobility?

"It's also the case that our current immigration system worsens income inequality in that it is much easier for uneducated and unskilled people to reside in America than it is for highly educated professionals.
...
I'd like to see a much more generous legal immigration policy targeting skilled individuals and stronger restrictions against illegal immigrants. But that would exacerbate income inequality."

These statements seem contradictory to me.
Rick Henderson said…
K, I stand corrected. If we encourage high-skilled immigration and crack down on low-skilled, illegal immigration, we'd be reducing the share of low-income imports. Got me there.

Income mobility is indeed possible between the middle quintiles even under a system that discourages entry-level entrepreneurship (the work that Walter Williams did 30 years or so ago on the ways our regs against entrepreneurship have hurt low-skilled blacks).

I'm guessing the founders of your company were immigrants. The tragedy of Americnan policy is that it's much easier for a recent immigrant who can't speak the language to be an economic success than it is for a second- (or even fourth-) generation black kid in a ghetto ... largely as a result of welfare programs that were meant to help those kids.
KhabaLox said…
Actually, they were middle class white women who financed their company with credit cards. Easy credit, determination, skill, and a market niche are what helped them to succeed.

Income mobility is indeed possible between the middle quintiles even under a system that discourages entry-level entrepreneurship
Based on the Pew reports I'v mentioned elsewhere intergenerational income mobility is nearly perfect (i.e. close to 20%) for the middle quintiles, so to the extent that our system discourages entry-level entrepreneurship, you're right.

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