Extreme Inequality: Workers vs.CEOs

By Peter Kaufman  

Imagine you work full-time as a customer service representative at a call center for one of the giant telecommunication companies. Your job is to help customers deal with a whole array of problems they may have with their wireless devices from poor reception to billing miscalculations to hardware malfunctions. At times, you must talk with irate and agitated callers but you must deal with these customers quickly and expediently or else your job performance will suffer and you may miss out on the potential for year-end bonuses.  You have been working for this company for nearly two years and you make just under $25,000 per year.

 Given the work you do for the company and the salary you earn, how do you think your income should compare to the CEO of this company? Would it be fair that the CEO makes 10 times more than you? 50 times more? 100 times more? 500 times more?  How about 1000 times more than what you earn? This would actually be the reality for you if you worked for T-Mobile. In 2013, the CEO of T-Mobile, John J. Legere, made over 29 million dollars in total compensation—an amount that is greater than 1,100 times what you earned.

Source: http://upload.wikimedia.org/wikipedia/commons/c/c8/The_Richest_Man_on_Earth.jpg

According the U. S. Bureau of Labor Statistics, the average production worker in the United States had an annual income of $35,239 in 2013, which is roughly equivalent to making $17.00 an hour. A full-time worker making the federal minimum wage ($7.25 per hour) in that same year had an annual income of $15,080. By comparison, the average CEO of the Standard & Poor’s (S&P) 500 Index earned  $11.7 million in total compensation,  more than 331 times the average production worker in the United States.

If you think the gap in the United States between worker pay and CEO pay is extreme you are absolutely correct: it is extreme. In no other time period in the history of the U. S. have we seen such drastic inequalities. In 1965, the income of the average CEO was 20 times greater than the average worker. In 1985 it was 46 times greater. In 1995, the gap was 195. The gaps we are seeing today are dwarfing these earlier differences and they are increasing each year.

Comparing these numbers to what is occurring in other countries further illustrates the extreme inequalities that have become the norm in the U. S. economy. The following chart depicts the great disparity between the United States and other countries in terms of the income ratios between CEOs and average workers. As you can see, no other country has even close to the type of inequality that exists in the United States:

 

We might think that with such excessive levels of inequality, average workers in the United States would be outraged by this tremendous disparity. One might expect that people would be marching in the streets to protest what is happening in the executive suites. Although there has been a recent upsurge in protests from fast-food workers and minimum-wage earners for increased pay, there is little public outcry about the income differentials between workers and CEOs.

One reason for the relative silence on this issue is that many people are unaware of these extreme differences. According to research conducted by Sorapop Kiatpongsan and Michael I. Norton, people in the United States are pretty clueless about how much they earn compared to CEOs. Comparing citizens from 40 countries and using data from the International Social Survey, the researchers found that the respondents from the United States assumed that CEOs made 29.6 times more than the typical unskilled worker—a far cry from today’s reality of 331 times more.

Interestingly, these same respondents suggested that the ideal ratio should be closer to 7 times more. In other words, the reality of this income gap is 331 times more, the assumption is that it is about 30 times more, and the expressed ideal is that it should be just 7 times more. Obviously, there is a tremendous disconnect between what is, what seems to be, and what ought to be.

When I think of CEOs making more than 300 times the average worker I always think of meritocracy and the deeply held belief in the United States that people earn what they deserve based on their efforts.  If we truly lived in such a meritocratic society, we can ask ourselves: Are CEOs really working 300 times harder than the average worker? Are John Legere’s efforts 1,100 more intense than the average T-Mobile employee? Does Robert Iger, CEO of Disney, work 2,000 times more than the median income earner at Disney?

Keep in mind that the gaps I’m discussing in this post are comparing the CEOs to the average workers and not the lowest paid workers. If we were making comparisons to employees at the bottom rung of the pay scale we would need a more extreme word than extreme to describe this gap. We also might need to redefine what if means to be deserving? If these CEOs deserve the extraordinary incomes they are bringing home, what does that suggest about the millions of people who are working hard at full time jobs and are still not above the poverty level?

Although it seems fair to say that most CEOs are not the least bit concerned about these extreme disparities (and why should they be if the general public is not complaining), there is one CEO who recently decided to address this gap. Dan Price, CEO of Gravity Payments, recently gave himself a 90% pay cut to ensure that all of his employees make at least $70,000 within the next three years. The employees of Gravity Payments were certainly elated by the news of this decision and so too, it seems, were potential clients. In the days after Price made this decision, the company was flooded with new clients (and lots of job applications, too).

I imagine it is unlikely that many (or any?) CEOs will follow in Dan Price’s footsteps.  Ironically, such an action would be seen as too extreme. Still, I wonder if any CEOs might consider an abbreviated version of Dan Price’s actions. Could they at least commit to offering all of their workers a living wage so that they do not have to work multiple jobs or apply for governmental assistance just to support their families? While such a gesture will not close the extreme gap between workers and CEOs, it will certainly make a significant difference in the lives of many low-wage earners.

Comments

[Joe Seydl]

It is indeed interesting to ponder how we got to a place where most people are unaware of the extreme inequalities that exist and/or are okay with them. I would argue that the latter is because of the religion-like philosophy in this country where people see the individual as in ultimate control and the market as the ultimate rewarder/punisher of merit. I say "religion-like" because the indifference toward inequality today is really no different than in the past, when people accepted grotesque inequalities as simply God's doing. We've moved on as a people to say that "God's doing" is not a sufficient response for why the world is the way it is, which is wonderful. But really our indifference toward how the market distributes income is no different than the defeatism that religion previously propagated. People like Robert Reich and Dean Baker are trying their best to expose the reality behind the extreme inequality - the reality being that it is rooted in a political effort by a few to rig the economic system in their favor so as to steal from the masses - but sadly their voices are whispers in a cacophony rapid-fire sensationalist sound bites meant to scare, intimidate and decieve the masses. We still live in an Orwellian world - we will always live in an Orwellian world.

https://prospect.org/article/political-roots-widening-inequality

[Peter Brown]

Hi W. W. Norton,

So the UK has introduced a living wage! Although they are taking with the other hand - and what was a living wage with tax breaks, might be the gutter without.

In the US however, CEO pay has increased 13.5% on last year. While a recent Hay Group analysis found that the real pay for US workers was a poultry 1%.

One new trend is that shareholders are trying to link pay increases with performance - however, with companies making profits from not paying workers, the issue continues.

Peter

http://www.consultancy.uk/news/2225/top-300-us-ceos-receive-over-13-million-dollars-per-year

[Allen Hardiman]

“Wow, these workers work so hard all day and they only get salaries who may not be enough to cover their standard of living,” I thought to myself when I see a tireless waiter/waitress in a restaurant. Meanwhile, the owners of the restaurant often just sit on the check out counter without doing anything much. Yet, the owners’ income is much higher than the waiter/waitress’s income. I am interested in this article because it correlates with how I perceive the world in my daily life, just like what I stated above about the owners of the restaurants and the waiters. Although the culture of the United States tells us that people deserved to get what they give, the application of this culture does not fulfill its expectations. In my opinion, meritocracy is a great culture because it gives people incentive to work harder. Yet, the inequality caused by this culture is ironic because these employees and workers might be working harder than their income would suggest.

[Trevor B]

I have a degree in economics and one of the things we never studied was the effects of capital formation and inherited capital. It is extremly hard for everyday people to accumulate wealth when compared to how easy it is for people who inherited capital to increase that capital with an effective rate of return.

That being said, some of the top CEO's today started with nothing. In fact, the majority came poor areas and went on to study at major institutions and work their way up for one company into top executive roles. Once in these roles they were paid handsomely. But, CEOs that founded their own company have much higher net worth. A good place to check out CEOs and learn about how some of them got to where they are now is www.popularceos.com

[Bihua Tian]

I think Freerice is a very good non-profit and meaningful platform for everyone. It's not only provide education to us for free but also help end world hunger by providing rice to hungry people. I totally donated 2000 grains of rice. Through this activity, I deeply feel our society is a big family. We links together and helping each other is our responsibilities. I checked 5 items labels:
Lamp--made in China
phone charger--made in China
ink--made in U.S.A
Body spray--made in U.S.A
speakers--made in U.S.A
Through this list, we can see the first two items were made in China which is industrializing nation, and the last Three items were made in U.S.A which is the most industrialized nation. The industrializing nation is also referred to as a developing country. While China is industrializing nation which at the middle of the hierarchy. Standards of living are lower than in the most industrialized nations, but range widely depending on weather a nation is rapidly industrializing or in decline.
Speaking of the stratification in America, although it seems everyone works hard can achieve more reward, but many people and some groups in America live under poverty-line. According to the website"census.gov" reports, at 1993 1/5 of richest people got 44% of incomes while 3/5 of poorest persons got 30% of all incomes. In my opinion, in America, ethnic minorities, women , and the poor have consistently been the largest of stereotyping, and as a result, they have been exploited throughout the nation's history. Also, taxes in America become more regressive , allowed the real value of the federal minimum wage to decline, and drastically cut social welfare spending that causes the gap between the poorest and richest has dramatically widened.

[Keven Minadie]

I appreciate free rice and their efforts, they are truly doing a great thing in trying to end world hunger. I donated a little more than 1000 grains of rice, however I am still unsure of how much and the specific amount of rice I have already donated. Maybe someday I will check back to see the true total amount of rice. As for the items and products my first one was bananas from costa rica, second one was cookies from Illinois U.S., the third one was a linksys router from china, the fouth item was intel core processors again from China, and the final item was a laptop case from Slovenia. As you see a good deal of my products come from industrializing nations like Costa Rica and China, while the other two products came from the most industrialized nations like the U.S. and Slovenia. So while we might get a good deal of our products from industrializing and least industrialized nations, I still got 40% of my 5 items for the most industrialized nations. As for the wage gap in America I do believe that it is quite high, making over 1000 times the average worker is a huge gap. I can even account for this as I work for an IT company and the boss so to say makes around 10-15 times my salary, however his larger salary didn't magically appear to him one day as he grew up in one of the worst slums in Rio de Janeiro where the death toll is insanely high. It was only through his amazing skills as a programmer did he manage to get his comfortable life in Florida, plus hes a really nice guy so I say a wage gap like that is acceptable.

[Alexandra Flores Cruz]

Free Rice is a great site for people to donate food to those who need it most. Throughout my time playing I donated 1000 grains of rice and I am sure donating more every now and then. I have learned about the Triangle Factory Fire in New York City on March 25, 1911. The workers were locked in and trapped leading to the death of 146 workers, mostly women. Many community, religious, and women's group came together to demand changes like: automatic sprinkler systems and that fire exits may never be locked. It also led the way to the Fair Labor Standard Act, minimum wage, and the right to organize. However, this did not mean the same in other countries. On December 14, 2010 in Bangladesh, a fire broke out in a factory with nearly the exact same details as the Triangle Factory Fire. I have searched around my house for 5 items to see what kind of labor it came from and now more than ever I am more conscious about the labor behind the items we use on our every day lives.
Mandala blanket - Made in India - Least industrialized
Shirt - Thailand - Least industrialized
Shirt - Ecuador - Least industrialized
Michael Kors bag - China - industrialized
Notebook - USA - Most industrialized
The extreme inequality between the average worker and the CEO of the company is ridiculously unbelievable. It is astonishing to see that the CEO of a company makes on average 331 times more than a worker within his/her company. This figure has sky rocketed through out the years and has never been this high in the history of the USA. We are also well above in this statistic than any other country.
Social stratification in the country can be divided many different ways. More often than not we are divided into three subgroups: The upper, middle, and lower class. Upper class can be defined as CEO's and professionals, middle class as professional support/sales, and lower class as the blue collar workers. People rage about inequality being unfair but in all reality society needs leadership to function which leads to inequality. It is very unfortunate but what is there to do to stop this?

[Kenny Small]

Wow great content! I really exiting when I read it ! Good work!