The Growing Income Inequality as a Global Problem

Source: Howard Risher, Compensation Benefits Review, Vol. 46 no. 2, March/April 2014

… Now the recent book Capital in the Twenty-First Century by French economist Thomas Piketty has triggered increased media attention to the situation. It is a heavy book both in the number of pages, over 600, and in terms of the subject. It is not bedtime reading as his argument is disturbing. … My purpose in this editorial is to highlight key points for specialists in compensation management. I believe everyone who works in compensation should be aware of his conclusions. … A thread that runs through the book is how equality/inequality changed through the last century. His primary measure of inequality is the percentage of national total income going to the top decile—that is the top 10% of earners. While the United States is discussed in more depth than other countries, he tracks the trends in several countries, and the patterns are strikingly similar…

…Although Piketty does not discuss it, since 1980 there has been a significant shift in the occupational structure of the U.S. workforce and a decline of unionization. The prominent economist Joseph Stiglitz contends, “Strong unions have helped to reduce inequality, whereas weaker unions have made it easier for CEOs, sometimes working with market forces that they have helped shape, to increase it.” The strongest unions now are in the public sector where there is a convergence of lower level pay levels with the highest salaries, with the latter held down by political pressure….

…A central point of his argument is the “rise of the supermanager”—the “explosion of very high salaries.” His data show that trend dates to 1980 and is evident in the United States, Britain, Canada and Australia— although the United States is more extreme…. But it is no doubt true that executive pay and Piketty’s argument would not be a cause for concern if the compensation of the other 90% had kept pace as it did for roughly three decades after World War II…